The Universities Superannuation Scheme (USS) has launched a consultation with Universities UK (UUK) on key changes of the pension scheme’s 2020 valuation.
The consultation will determine the pension contributions required by employees working in the UK university sector. Based on initial proposals put forward by USS, and depending on which employers will be able to commit to supporting the defined benefit (DB) scheme, the fund’s debt as of 31 March 2020 could range from £9.8 billion to £17.9 billion if no changes are made.
Additionally, employers continuing to offer their current pension benefits could cost 29.4% to 37.6% of payroll. When factoring in the cost of repairing the debt, the total contributions could range from 40.8% to 67.9% on the payroll subject to separate consultations later in the valuation process.
This means that UK universities and their staff could potentially face significantly elevated annual pension prices to fill an estimated £18 billion worth of debt in the retirement scheme under the higher education sector.
Employers affected by this consultation have until 30 October 2020 to give feedback to UUK on this consultation, with UUK having until 11 November 2020 to give USSL an initial response.
Bill Galvin, chief executive at USS, said: “At 31 March 2020, Covid-19 (Coronavirus) was sweeping across the world and financial markets were hugely uncertain about the potential outcome.
“Our 2020 report outlines the position of the scheme against this challenging backdrop. Five-year investment performance was strong in absolute and relative terms, and we retained our cost advantage versus peers.
“Even before Coronavirus, historically low interest rates, increased life expectancy, greater regulation, and volatile financial markets had already made promises of a set retirement income for life more expensive.
“The depth of the economic shock brought about by the pandemic has highlighted the long-term challenges facing open defined benefit (DB) pension schemes like USS; challenges that we intend to work with our stakeholders.”
Matthew Harrison, managing director at Lincoln Pensions added: “The USS consultation highlights the importance of “mutuality” to the covenant strength, proposing that employers should be required to commit to remaining within USS in order to underpin and protect the covenant.
“Mutuality ensures that all employers support the USS together, rather than being responsible for just their own share of the liabilities. This concept has both facilitated the frictionless movement of Academics around the sector and underpinned the strength of the USS’ covenant.
“Innovative thinking will be needed to navigate the USS 2020 actuarial valuation in a way that allows all employers to thrive.”