The average FRS17 funding level of university pension schemes has dropped by 4% in the past year, the fourth University Self Administered Trusts (SATs) annual survey has found.

In the past year, the average FRS17 funding level fell from 81% to 77%. This corresponds to an average deficit of around £42 million per SAT – up from around £34 million in 2011.

The survey, conducted by Barnett Waddingham, examined the accounts of 36 universities that operate their own pension scheme in order to determine the impact final salary pension schemes are having on the finances of universities.

It found that of the 36 universities with data on financial years that ended on 31 July 2012, the SAT pension deficits represented an average of 10% of the net assets of the university – up from 8% in 2011 (excluding the SAT pension deficit).

Contributions to SATs, which covered only non-academic employees, represented an average of 3.4% of total staff costs – up from 3.3% in 2011.

The survey also considered the range of assumptions being adopted by universities in their FRS17 disclosures as at 31 July 2012. The key findings include: the average life expectancy assumption ranged from 18 to 24 years for a 65-year-old male; a total of 27 supplied consumer price index (CPI) inflation assumption implying that the majority use CPI as a measure of future inflation; the average real salary growth assumption increased by 0.2% per annum in 2012 compared to 2013; and the average equity weighting is 61% largely unchanged from 2011 average of 62%.

Barnett Waddingham partner Nick Griggs said: “The news that average funding levels for university pension schemes have fallen is a trend we are seeing across all sectors. The concern is that this will push even more universities to close their schemes to future accrual.

“With SAT pension deficits now accounting for an average of 10% of a university’s net assets, SATs are becoming an increasingly important area. They represent a significant financial risk, particularly given the high equity allocation, compared to other sectors, many SATs hold.”

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