USS deficit falls £12.5bn since last valuation

The Universities Superannuation Scheme (USS) deficit has dropped by £12.5bn since the last valuation, falling from £14.1bn in March 2020 to £1.6bn as at 31 March 2022, according to the latest interim monitoring report from the scheme trustee.

The report revealed that the scheme assets had increased from £66.5bn to £88.8bn since the last valuation in March 2020, which was attributed to high returns on equities.

Liabilities also increased, however, from £80.6bn to £90.4bn, due to rising inflation expectations and lower future expected returns relative to gilts, although this was partly offset by increasing nominal gilt yields.

These higher nominal gilt yields also prompted a -0.5 percentage point fall in the future service cost, from 25.2 per cent to 24.7 per cent.

The impact of higher inflation on future service contribution requirements was also limited, thanks to the 2.5 per cent cap on annual inflationary increases, on benefits earned since 1 April 2022.

The range for deficit recovery contributions also fell to 0-1.5 per cent, down from 6.2 per cent in March 2020, which the trustee argued outweighed the increase in the future service cost, meaning that total contribution requirements based on the interim monitoring are lower than at the valuation date.

In particular, the trustee estimated the future contribution requirement for pre-1 April 2022 benefits as 36.4 per cent with a deficit of £3.1bn, whilst deficit contribution requirements would be 0.3 per cent allowing for a 15-year recovery period from the monitoring date and 0.25 per cent p.a. out-performance, and 2.9 per cent assuming a recovery period of 10 years and no out-performance.

Despite the funding improvements, the trustee emphasised that funding on a month-by-month basis has been "volatile" since 31 March 2020, stressing that these figures are not intended to be the basis for any decisions, and that the monitoring approach is “not as thorough” as the valuation approach.

The trustee also clarified that these figures reflect the benefit changes that the Joint Negotiating Committee (JNC) recently voted through, and the associated additional covenant support measures provided by sponsoring employers which came in to effect from 1 April 2022.

These changes have prompted 'unprecedented' industrial action at a number of UK universities over the past year, with further strike action still expected, and the University and College Union repeatedly on scheme employers to halt the changes, particularly in light of funding improvements.

Indeed, in response to the latest figures, UCU general secretary Jo Grady has again called on sponsoring employers to agree a "fair deal" for members in light of the scheme's "vastly improved financial performance".

She stated: "The cuts imposed earlier this year were predicated on a valuation that was conducted in March 2020 at the height of the pandemic, as markets were crashing. That valuation wildly underestimated the enduring strength of the scheme, as shown in this latest report.

"Ahead of a new valuation which can increase staff benefits in the longer term, there must now also be urgent steps taken to harness this much improved position, preventing any more damage being done to our members’ hard earned pensions.

"The cuts that employers forced through have left staff with no option but to take strike action to defend their retirement. It would be in the sector’s best interests for employers to begin working with us and to use the scheme’s vastly improved financial performance to give staff a fair deal."

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