Barnett Waddingham research: Funding level of university pensions has improved

The average FRS17 funding level of university pension schemes has improved by 3% between 2009 and 2010, according to the second annual Survey of University Self Administered Trusts (SATs) conducted by Barnett Waddingham.

The survey is based on data in the published accounts of universities with financial years that ended on 31 July 2010. The figures are based on a sample of 26 universities that operate their own pension scheme.

The survey, which focuses on the impact final salary pension schemes are having on the finances of universities, also considered the range of assumptions being adopted by universities in their FRS17 disclosures as at 31 July 2010.

The average equity weighting of university pensions schemes in 2010 was 57%, lower than the 2009 average of 67%, suggesting a significant degree of re-balancing of assets or the de-risking of schemes has taken place.

The survey showed that in 2010 the pension deficit represented, on average, 11% of the net assets of the university (excluding the SAT pension deficit), a decrease on the average of 13% seen in 2009.

The average life expectancy assumption increased by 0.5 years in 2010. This is a higher increase on a year-on-year basis than would be expected solely due to anticipated improvements over the period.

Nick Griggs, partner at Barnett Waddingham, said: “It is encouraging that university pension scheme funding levels are on average moving in the right direction.

“However, the increase in contributions being paid to clear the deficits that exist in these schemes will be a concern for many universities at a time when funding cuts are being made.

“The switch of statutory increases from the retail prices index (RPI) to the consumer prices index (CPI) will have helped many universities and must have been a welcome boost.

“It is interesting to see that university pension schemes have been de-risking by reducing their exposure to equities. This is a trend we are seeing across the private sector but an average 10% shift is a significant change in a single year.”

Read more research on public sector pension schemes