Average funding level of university pension schemes improves

The average funding level of university pension schemes on the UK standard accounting basis, FRS17, has improved significantly over the year to 31 July 2011, according to research by Barnett Waddingham.

The actuarial firm’s third annual University self-administered trusts (SATs) survey, which focuses on the impact of final salary pension schemes on the finances of universities, found the average funding level for universities was 81% in 31 July 2011, representing a 5% increase over 12 months.

The research also found that half of the trusts surveyed now base future inflation increases, at least partially, on the consumer prices index (CPI), rather than the retail prices index (RPI), which will have improved their financial positions. The average gap between assumptions adopted for RPI and CPI was 0.8% per annum.

The research also found:

  • A wide range of assumptions had been adopted by universities in their FRS17 disclosures at 31 July 2011
  • Despite the significant gains in equities over the year to 31 July 2011, the average equity weighting in SATs’ portfolios remained largely unchanged (59%) from 2010, implying there was some degree of re-balancing of assets or de-risking taking place over that period.
  • In 2011, the pension scheme deficit represented, on average, 8% of the net assets of the sponsoring university, a decrease from 11% in 2010.

Nick Griggs, a partner at Barnett Waddingham, said: “University directors of finance will generally have received good news at 31 July 2011, seeing significantly improved levels of funding in their pension schemes.

“However, the period shortly after the reporting date was a particularly volatile time in financial markets, with large falls in bond yields and equity values meaning that FRS17 funding levels are likely to have worsened since the reporting date.

“It is interesting to see that university pension schemes saw little change to the proportion of their assets invested in equities despite the significant gains in that asset class. This could reflect a continued trend of de-risking and a re-balancing of assets as universities adapt to the challenging market.”

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