USS rejects university employers' request for valuation review

The Universities Superannuation Scheme (USS) has rejected a request from Universities UK (UUK) for a review of the assumptions for the recent scheme valuation.

In a letter from USS trustee board chair, Kate Barker, the USS stated that until new information materialises, or an alternative proposal is forthcoming, there is no justifiable basis on which to review the outcomes illustrated in previous reports.

Instead, the trustees highlighted UUK’s recent proposal to consult with employers on covenant support measures, contributions and benefit reform, stating that the “most productive way forward” would be to work together on developing alternative packages.

The USS emphasised that demonstrable progress with the valuation needs to be made, in line with legislation, to ensure it is completed in a “timely manner”, having previously acknowledged that it is unlikely to meet the regulatory deadline for the valuation.

It also confirmed that more information will be provided to the Joint Negating Committee in April on the remaining timeline for the valuation, as well as the key decision-making milestones that would need to be met to allow increases in contribution requirements to be addressed "within reasonable timescales".

UUK had previously written to both the USS trustee and The Pensions Regulator (TPR) to request a review of the scheme's recent valuations amid concerns that there may be an "unjustified" level of reform.

It also argued that the trustee had taken "very little account" of the group's initial response to the technical provisions (TP) consultation, with both UUK and the University and College Union (UCU) highlighting concerns over the "unaffordable" increases proposed by the scheme.

These comments were made following the news that contributions to the USS may need to increase to as much as 56.2 per cent of payroll in order to combat the scheme's deficit.

However, Barker also responded to a number of the specific concerns highlighted by the UUK, such as the level of prudence in the valuation assumptions, arguing that the trustee’s choice of discount rates reflect the financial condition at 31 March 2020.

The letter emphasised that if stakeholders believe less prudent assumptions are appropriate, they have options available to support a greater level of risk-taking by the trustee, such as pledging contingent contributions.

Also addressing covenant concerns, the USS explained that the covenant is weaker in each of the scenarios considered to date for the 2020 valuation due to the absence or “significant weakening” of the longer-term commitments, which it had assumed “in good faith” would follow.

“We fully understand and are very sympathetic to the issues faced by employers and scheme members in these circumstances – but the scale of the challenge before us has been clear since at least September 2020, when we published the TP consultation document," it stated.

“We engaged extensively with employers and stakeholders before, during and after that point and are in no doubt that the key issues were made very clear."

Commenting in response to the letter, a UUK spokesperson, on behalf of USS employers, said: “We will be keeping up the pressure on the USS trustee to reconsider its approach and are seeking employers’ views on the USS trustee’s response to our concerns, as well as the way forward for this valuation.

"We are exploring all governance options to achieve movement in the valuation outcome.

“As part of our employer consultation, to be launched next week, we will seek views on alternative paths which would reduce the headline costs put forward by USS and give scheme members the best possible level of benefits for more affordable contributions.

“These alternative potential paths would require the USS trustee to evolve their assumptions and employers to offer further covenant support, for affordable benefits which include a defined benefit (DB) element.”

UCU has also previously raised concerns over the USS valuation approach, calling on employers to challenge the scheme, as representatives from Oxford and Cambridge University have done.

A formal complaint letter was also sent to the scheme earlier this year, garnering support from over 3,800 members of the scheme.

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