Pension deficit down but doubts remain
The university pension deficit has more than halved since 2017, according to a report released last week. A phased increase in employee contributions is due to begin in April. The news coincides with the beginning of a consultation to determine how much financial risk universities are willing to take on, as well as the views of lecturers and other staff.
The Universities Superannuation Scheme (USS) to which most staff belong last year claimed to be operating with a £7.5 billion deficit — a figure disputed by Universities UK (UUK), which represents employers. As of March 2018, the deficit has been valued at £3.6 billion, following better-than-expected returns on the Scheme’s assets and investments.
The 2018 valuation takes into consideration some of the recommendations of the Joint Expert Panel (JEP), which was set up last year and tasked with reviewing the 2017 valuation as part of a deal to resolve industrial action. The Panel returned a series of proposed changes, overwhelmingly supported by UUK members.
USS has indicated it is prepared to accepted two of the JEP’s six proposed adjustments but claims that implementing the remaining adjustments would pose too much risk, even if additional contingency support were to be introduced. In December Dennis Leech, Emeritus Professor of Economics at the University of Warwick, reported that attendees of a USS Institutions meeting were told that adopting all of the JEP’s proposals would create a surplus of £0.5 billion and allow contribution rates to drop below the current level of 26% of an employee’s salary. As things stand, contributions will be gradually increased to 36.6% by April 2020.
JEP Proposals:
Accepted:
- Increasing the reliance at 20 years from £10bn.
- Reducing the deficit recovery contributions (by allowing for investment out-performance or increasing the length of the recovery period).
Rejected:
- Increasing the reliance at 20 years above £10bn in real terms.
- Deferring when de-risking starts.
- Smoothing contributions over future valuation cycles.
- Allowing for outperformance in the recovery plan.
