USS deficit falls to £1.5bn

The Universities Superannuation Scheme (USS) deficit has dropped by £12.6bn since its last valuation in March 2020, falling from £14.1bn to £1.5bn as at 31 March 2022, according to the scheme's latest Annual Report and Accounts.

The report revealed that the scheme has a total of £90.8bn in asset under management and a funding ratio of 98 per cent, with USS group chief executive, Bill Galvin, suggesting that the scheme "is in a significantly better position in many different ways".

In particular, Galvin explained that whilst market conditions have been volatile, strong investment returns outpaced the growth in liabilities and the funding position has improved.

Indeed, the scheme's report revealed that the achieved 9.55 per cent return on the scheme’s DB assets over the past year, 2 per cent above its benchmark.

It also recorded an average per annum investment return of 7.8 per cent for the defined benefit (DB) fund over the past five years, which has seen the DB fund increase by £25.3bn as a result.

The use of in-house investment management also meant that the scheme's annual investment management costs were around £101m lower than its global peer median.

This continued a long-term trend, as the USS has been assessed as being 24 per cent less expensive over the past five annual independent benchmarking reports, equal to a £384m saving.

During the period, the USS’s membership grew by almost 25,000 to 500,584, with USS members now accounting for over fifth of the fewer than one million people in the UK who are still actively paying int private DB schemes.

Commenting on the results more broadly, Galvin stated: "Our operating model continues to ensure we manage our assets at a materially lower cost than our peers while delivering very good performance.

“We have also made significant advances in our response to climate change, and to the service levels to our membership – improving our members’ digital offering, for example, and offering free guidance calls to members over 50.

"We understand that, for members, all of this is set against a background of higher contributions and reductions to benefits.

“While their (and employers’) feedback on our service to them has consistently been very positive, the challenges and changes arising from the 2020 valuation have impacted their overall satisfaction.

“We completely understand these sentiments and are committed to working together with our stakeholders to deliver the best possible outcomes as we look forward to planning the scheme’s future against a less difficult backdrop than in the recent past.”

Adding to this, USSL Trustee Board chair, Dame Kate Barker, said: “Over the past year, we have wrestled with significant issues and difficult decisions, but the benefit changes introduced this year – as unwelcome as they were – have put the scheme on an affordable and more stable footing.

“For the first time in some years, recent data indicate we could be on track to achieving a more robust funding position and our hope is that conditions improve over time, sufficient to allow more positive discussions in future.

"As we turn the page on a difficult chapter in the scheme’s history and look ahead, we continue to focus on the ways USS can evolve and maintain its position as one of the best private pension offerings in the country.

“We are committed to working with UUK and University and College Union (UCU) as they consider some important programmes of work: exploring lower cost options, considering different benefit structures (such as conditional indexation), and reviewing the scheme’s governance arrangements.

"These are important initiatives to improve the resilience of the scheme and support a wider range of the academic community we serve.”

However, UCU general secretary, Jo Grady, raised concerns over the staff remuneration paid during this period, arguing that it is "a disgraceful show of excess that will rightly be condemned by university staff up and down the UK".

She stated: "Whilst staff try to figure out how to manage the impact of USS pension cuts worth hundreds of thousands of pounds, Bill Galvin is wondering how best to spend his £100k bonus and his £480k salary.

"From leading a disastrous valuation process to overseeing unprecedented attacks on retirement incomes, Galvin's record is one of overpaid failure. Staff have had enough, and that's why they are balloting again to win their pensions back."

Commenting in response to these concerns, however, Barker stated: “The ARA demonstrates that USS is a very well-run pension scheme, outperforming its targets and benchmarks across investments and pensions administration.

“USSIM outperformed the scheme’s five-year benchmark by 0.6 per cent p.a., which added £2.3bn of value to the scheme’s assets (net of costs) over the five-year period – helping deliver DB fund returns of 7.8 per cent p.a. or the equivalent of £27.5bn in that time.

“While members’ feedback on our service has been consistently positive, there is no escaping that the challenges and changes arising from the 2020 valuation have impacted members’ satisfaction scores overall.

"We completely understand these sentiments, but we have had to make very difficult judgments to ensure members’ pensions are secure and can safely be paid in almost all potential futures, without threat to the financial stability of the institutions that ultimately stand behind the pensions being promised.

“We have worked hard to explain the external challenges we face, as well as the significant value the scheme continues to offer.

"We will continue to do that, and to make clear our resolute commitment to securing members’ benefits and delivering quality administrative and investment services to the people and institutions we are privileged to serve.”

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