Which way forward for USS?
A couple of weeks ago I was surprised to learn that Universities Superannuation Scheme (USS) trustees have adopted a more conservative approach to the valuation than had been the case in the last consultation, and that the collective response from the Universities UK (UUK) consultation is now apparently supportive of the removal of the defined benefit element of the current scheme, at least for the immediate future.
It is a very significant change, that if implemented, will greatly impact on a large number of colleagues in Warwick, as well as in other universities around the country.
I am sure that I am not alone in being mystified at this change. After much work and consideration, we were relatively comfortable with the level of risk proposed previously by the trustees and broadly content with assumptions which appeared valid in the round. We reported as much in the consultation formally. USS is now the largest remaining defined benefit scheme in the country not backed by government (on which, more later). There has been a market logic to a number of private sector defined benefit schemes being closed. There are concerns about the levels of funding required to keep it functioning, and these concerns seem very widespread at the moment.
The assumptions in the consultation with the sector have now been altered, and so I support calls from others for more transparency, particularly on issues such as self-sufficiency, mortality assumptions and projections for gilt yields, since these are the building blocks upon which a new greater conservatism has been placed.
I can assure Warwick staff that we will reiterate our previous concern that the proposed de facto end to the defined benefit scheme will require USS’s investment strategy to become increasingly cautious, which would materially inhibit the future growth of assets out of which pensions will ultimately be funded.
The latest iteration of the valuation has very serious consequences for staff and for employers in the sector, and we want to explore how we can get to a position where there is a threshold for the defined benefit scheme which is workable and supports early career academics in particular.
We are very conscious that there are alternative more attractive schemes in place elsewhere in the sector (e.g. Teachers’ Pension Scheme which is available to the post-92 sector) and are increasingly concerned that a very large multi-employer scheme, such as USS, is being placed in the same regulatory regime as that applied to more traditional private sector schemes, with far reaching consequences for staff in pre-1992 higher education institutions.
So what is to be done? First, we will press, as above, for greater understanding and explanation as to what has changed in the process. But second, I think we should also explore the possibility of obtaining government backing for the pension scheme and the possible benefits that might bring. A government backed scheme becomes an asset for the government, but provides vital underpinning for members.
Whatever happens we will not let the current increasingly conservative approach to USS go unchallenged. As a University, we need to be able to offer a competitive and high quality pension scheme and we will seek to work with any other interested parties to identify whether any alternative, more innovative, solutions may be feasible.