Out-Law / Your Daily Need-To-Know

University pension scheme deficit 'nearly doubles' to £6.6bn

Out-Law News | 03 Sep 2019 | 8:53 am | 1 min. read

The Universities Superannuation Scheme (USS) deficit has almost doubled in recent months as a result of financial market "volatility", while unions have threatened further strike action this autumn.

USS member contributions are due to increase from 8.8% of salary to 9.6% of salary in October, in the first part of a plan to address the £3.6bn funding deficit recorded following last year's revaluation of the scheme. However, that figure had increased to an estimated £6.6bn as of the end of July.

In a letter seen by the Financial Times (registration required), USS group chief executive Bill Galvin warned employer representatives at Universities UK that the scheme trustees may now "need to reconsider the contribution rates/or evaluate other mitigating actions that may be required" before they could finalise the 2018 valuation.

Stones Nick

Nick Stones

Partner

A medium-term settlement, together with a clear education programme from the employers, could help take out the heat from this.

Separately, the Universities and Colleges Union (UCU) has announced its intention to ballot its members at 69 institutions for strike action over the previously-announced member contribution increases. The ballot will open on 9 September and close on 30 October.

USS is the principal pension scheme for academic and senior administrative staff at UK universities and other higher education and research institutions.

Previous USS reform proposals, which included closing the defined benefit (DB) section of the scheme to future accrual, prompted a series of strikes by affected staff in early 2018. The strike action prompted an additional scheme revaluation outside of the usual three-year cycle, and led to the setting up of an independent panel to review the scheme and how it operated.

Earlier this month, the USS accepted the 9.6% member contribution proposal put forward by scheme employers, with no further increases until 2021. UCU had put forward an alternative proposal limiting member contributions to 8%, with any further cost increases to be met by employers.

Employers put forward a second proposal limiting the increase in member contributions to 9.1%, in exchange for a commitment from the UCU that it would not propose further strikes for two years. This has also been rejected by the union.

Public sector pensions expert Nick Stones of Pinsent Masons, the law firm behind Out-Law, said that the "basic quandary" of who should pay for market volatility was at the heart of the dispute, assuming the actuarial assumptions behind the latest figures were correct.

"Asking for increased employee contributions is not uncommon and it generally follows on from increases in employer contributions," he said. "The problem is that, to some of the more junior members, paying contributions of around 10% of pay is noticeable."

"A medium-term settlement, together with a clear education programme from the employers, could help take out the heat from this problem. That is achievable, but needs the cooperation of the myriad employers, the pension scheme trustee, the union and The Pensions Regulator - no easy task," he said.