USS could miss 2020 triennial valuation deadline

"Challenging timelines" mean that the Universities Superannuation Scheme (USS) could miss its triennial valuation deadline of 30 June, according to USS chief executive, Bill Galvin.

Galvin stated that unless the Joint Negotiating Committee (JNC) concludes on an answer to the scheme's report "immediately on receipt", it was likely to miss the statutory deadline.

He also conceded that even if the JNC responded with an answer immediately, the scheme may still miss the deadline.

The scheme, which serves around 500,000 members from 340 institutions, is undertaking its three-year valuation, with the effective date of 31 March 2020, and noted that it had received a covenant proposal from Universities UK (UUK), which it described as “very helpful”.

However, Galvin commented: “It, indeed, is some way short of what we had asked for – and, indeed, what we had hoped for – but it has allowed real and tangible progress to be made in the last few weeks.

“We believe that, with this information, the trustee has all of the components required to decide on the structure and the conclusions of the report to the JNC that signals it's now to the stakeholders’ task to find a solution. We expect that report to come together in the coming days.”

He added that contribution increases in October were “close to being an inevitable occurrence”.

The scheme said it had informed The Pensions Regulator of the situation.

Galvin continued: “I must emphasise that now we stand ready to support stakeholders in their analysis of options and in their search for solutions. If, indeed, this is the employers’ best and final offer on covenant support measures, this process will be more challenging than, perhaps, we had hoped, but we understand employers must interpret their priorities and preference for the commitment of their resources.

“We continue to believe the sector has the capacity to support the proposition to the regulator, that the scheme is supported by a strong covenant. A critical component of that is the employers’ willingness to provide the commitments that can confirm this.

“It feels like there's some way to go on this process, yet it's also clear that time is of the essence. We are past the point where we should be focused on exploring viable solutions in a collaborative way. We are at the disposal of the stakeholders and the JNC as this process works through.”

Meanwhile, Galvin also stated that the scheme’s assets had increased to around £80bn from £67bn in what has been a “volatile year”.

Speaking at the USS Institutions Meeting 2020, which served as an update to the scheme’s sponsoring employers on how it had performed through the pandemic, Galvin acknowledged that the 2020 annual valuation date had come as “asset values fell globally”, although noted that the scheme’s investment portfolio did substantially better than its reference portfolio benchmark.

The reference benchmark had been down 5.4 per cent for the year, while the scheme’s implemented portfolio was down by 1.7 per cent.

Overall scheme costs increased by over 15 per cent in 2020, rising from £260m to £301m, which was attributed to a 20 per cent increase in internal costs, asset value falls and restructuring effects in the scheme’s indirect private equity portfolios.

Even so, the scheme said its cost position was £50m per annum less expensive than peers who run a similar asset mix because of its choice to manage investments in-house.

USS chair, Kate Barker, said: “I wish this presentation was coming against the background we'd all hoped for, with a new methodology in response to the JEP, leading to a smaller deficit. The economic shock of the pandemic has swept that hope away, and, indeed, introduced new uncertainties.

“So, it's more important than ever that we have the express commitment of you, our sponsors, to underwriting the security of our members’ pensions. That's absolutely critical to the cost of funding them.

“We need to be sure that you will prioritise funding for the scheme in the long-term future and in adverse circumstances. That, of course, is why the covenant measures – we've already been discussing these for 18 months – are really vital.

“That's why so far we've delayed making any final decisions but extended the window with you in engaging on these covenant measures, because we really do hope to find a way forward.

“Nobody underestimates the scale of the issues to be resolved in this valuation, but our duty as trustees – it is, indeed, our primary legal duty – means that our first priority is the security of our members’ benefits. Of course, we recognise the issues around affordability. We'd be rather foolish if we didn't.”

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