USS proposes scheme valuation methodology changes

The Universities Superannuation Scheme (USS) has issued a technical discussion document to sponsoring employers, seeking opinions on proposed changes to its 2020 valuation methodology.

The document sets out an emerging approach to the methodology following a review by the trustee last summer and “reflects feedback from stakeholders and the recommendations of the Joint Expert Panel (JEP)".

It is looking for feedback on replacing ‘Test 1’ methodology used in previous valuations with a ‘check’ that funding risk remains within risk appetite.

‘Test 1’ was a test designed to measure whether the long-term risk for DB schemes is within the risk appetite by checking the difference between self-sufficiency and technical provisions in 20-years time does not become too large for employers to support.

It also proposes using a pre- and post-retirement dual discount rate approach and determining an investment strategy that is better aligned with risk appetite.

Furthermore, the document will seek views on alternative ways of assessing the strength of scheme’s covenant and risk capacity of employers.

Commenting on the proposals, USS group chief executive, Bill Galvin, said: “We have carried out a fundamental review of our methodology and considered carefully the JEP’s latest recommendations, and feedback from our stakeholders, in developing our approach to the 2020 valuation.

“No decisions have been made but we have set out potential changes to the approach we could take and the key issues as we see them. We look forward to discussing them with employers over the next six weeks and hearing what they have to say.”

The document is addressed to sponsoring employers but is also available to members and stakeholders.

Respondents have until 17 April 2020 to issue their feedback.

Galvin added: “The views of employers on the key issues of covenant and risk appetite will be hugely important and will influence the decisions we will need to make in May ahead of the more formal consultation stages.

“We recognise there will be a wide-range of views on the most appropriate approach to take and we will continue to explore these with UCU and UUK.

“We will consider feedback and alternative approaches with an open mind, in the context of the fiduciary duty owed by the trustee to ensure pension promises made are secure.”

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