USS reports itself to TPR after funding measure breach

The University Superannuation Scheme (USS) has reported itself to The Pensions Regulator (TPR) after breaching a funding measure from its monitoring and action framework.

The funding measure in question relates to the schemes ability to remain self sufficient, with the deficit on a ‘self-sufficiency’ basis exceeding one measure of covenant support for five consecutive business days as of 12 March.

In a letter to the heads of participating USS institutions, the USS confirmed that assets had hit £68.2bn on 12 March, while technical provision liabilities were at £80.3bn, and self-sufficiency liabilities were at £105.6bn.

A meeting of the trustee board will take place on 26 March, to review the circumstances around the trigger and discuss what, if any, action should be taken.

A USS spokesperson explained: “The metric in question is the ratio of the low-risk ‘self-sufficiency’ deficit in the scheme to the present value of 10 per cent of employer payroll contributions (annually) over 30 years.

“This measure is important as uncertainty for the scheme’s future funding means an increased dependency on the potential support of the sector to underpin the assumptions made in funding the scheme.”

The funding levels were hit by ongoing market volatility caused by the COVID-19 pandemic.

The breach follows warnings from Aon that sponsors and trustees could face difficult valuations in the coming months, urging them to review their options now.

In the letter to heads of participating USS investors, USS group chief executive, Bill Galvin, said: "Our current view is that the impact of Covid-19 will be very significant over the near term."

However, he added that this impact is likely to be "less material" in the long term, adding that "it is impossible to be confident at this point on the long or short-term impacts".

“We will not rush to judgement on how to deal with the current circumstances," Galvin emphasised. "We will remain vigilant and continue to monitor market indicators; we will continue to monitor the way in which the sector’s potential support for the scheme in the long and short-term might be affected.”

A USS spokesperson added: “Our pension promises are secure because they are supported by the strength and longevity of employers in the UK higher education sector.

"It is important these sponsors are clear on the funding position and on their commitment to the scheme should our assumptions prove inadequate."

The scheme has confirmed that it is also reviewing the impact on the its "published valuation schedule", highlighting that there will “likely be prolonged operational disruptions in institutions and for USS”.

The USS spokesperson explained: "The 2020 valuation provides an opportunity to take a calm and considered approach to assessing current conditions and any changes to the long-term outlook.

"We will be able to review and potentially reflect ‘post-valuation experience’ as we work through the process.

“We will, however, continue to respond to our stakeholders’ needs and priorities in light of the very challenging and constantly evolving circumstances we are all facing. As such, the timeline for valuation related activities will remain under review.”

The statutory deadline for the valuation to be filed with The Pensions Regulator (TPR) has been set as June 2021, though the schemes' 2017 and 2018 valuations were both filed “well after the statutory deadline had passed”.

The USS recently issued a technical discussion document to sponsoring employers, seeking opinions on proposed changes to its 2020 valuation methodology earlier this month, and had been set to agree its 2020 valuation on 31 March.

Tripartite talks between the University Superannuation Scheme (USS) and Universities UK (UUK) and University and College Union (UCU) have been ongoing since January, predominantly focusing on recommendations from the Joint Expert Panel’s second report and issues around the 2020 valuation of the scheme.

Whilst the ongoing dispute between USS and UCU had recently reached a 'stalemate', the UCU has now confirmed plans to postpone reballots until June amid COVID-19 concerns.

Commenting on the scheme's breach, a spokesperson for UCU, said: “USS has underlying strengths and it is important there are no snap judgements made at this time.

"The scheme needs to ensure that decisions are taken after proper consultation with all stakeholders, including scheme members.”

A spokesperson for USS Employers added: "It is to be expected that pension schemes, including USS, would monitor funding levels at this volatile time for financial markets.

"USS employers are reassured that the USS trustee has a monitoring framework in place for such circumstances which allows the trustee to establish whether any trigger breach is a result of short-term volatility, and will discuss any proposed next steps with stakeholders prior to taking any action."

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