The Work and Pensions Committee chair Frank Field has launched a probe into the Universities Superannuation Scheme’s ballooning pension deficit.

According to the Financial Times, Field has written to ministers, trustees of the USS and The Pensions Regulator to explain how the fund's deficit has doubled to £12.6bn in three years.

Field has argued that the possibility of students having to pay higher tuition fees and debt to partially cover some of the defined benefit pension entitlements that they won’t be receiving is an area of intergenerational fairness.

“This is an opening skirmish,” he told the Financial Times.

Furthermore, in letters to University of Birmingham and USS chair of the board of trustees David Eastwood, and to the regulator, Field noted that the “large and growing funding gap” in the USS scheme was leading to “serious concerns” about how the fund would tackle its deficit and the implications it may have for universities involved.

TPR was also questioned on its decisions in 2011 and 2014 to enable the USS to extend its deficit repayment plan to 10 and 17 years, respectively.

The USS has explained that its deficit grew as a result of a large drop in long-term interest rates, which inflated liabilities. Assets grew by 20 per cent to £60bn in the year to the end of March 2017, yet liabilities over the period also grew at a quicker rate.

Universities UK told the Financial Times: “It is clear that changes need to be made to ensure pension costs and risks are controlled and these issues are being addressed.”

“The deficit is unlikely to be as large as the £12bn shown in our annual accounts and remains within affordable levels for sponsoring employers,” it said.

However: “The lower expected returns on assets will increase the cost of future pensions and our stakeholders, Universities UK and the University and College Union will need to decide how to respond.”

Aegon pensions director Steven Cameron said that increasing student tuition fees would be in direct conflict with the government’s desire to create intergenerational fairness.

“Gold plated defined benefit schemes are rarely open to those joining today’s private sector workforce, but the funding shortfalls of many existing schemes are having wide reaching implications which can pass down through the generations.

“The suggestion that universities may need to increase the tuition fees for today’s students to fund the huge pension shortfall takes intergenerational unfairness to a new level. Saddling our future workforce with even greater student debt to make good on pension promises offered to previous generations is a case of ‘robbing grandson Peter to pay grandpa Paul’."

The publication of the USS’ annual report and accounts revealed it had seen its deficit increase from £8.5bn in 2016 to £17.5bn (when measured on an accounting level used for company reports), with a funding level of 77 per cent compared to 85 per cent last year. It is an increase of £9bn in a year and it now has the largest deficit of any other UK pension fund.

The USS fund is currently undergoing its 2017 actuarial valuation.

Universities UK said it would send a “full response” to a letter Field has sent to its president, University of Liverpool vice-chancellor Janet Beer, the Financial Times reported.

A TPR spokesperson said: “We remain closely engaged with the trustees of the USS regarding the funding of the scheme as part of our role to protect member benefits and the Pension Protection Fund. We do not comment on specific pension schemes or employers unless it is appropriate to do so.”

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