The estimated defined benefit (DB) funding surplus for the Universities Superannuation Scheme (USS) has increased to £10.1bn, as work to explore how the scheme might be put on a more stable footing continues, including consideration of conditional indexation.

The group's latest annual report and accounts revealed that the value of the DB fund’s estimated surplus grew by £0.9bn as of the end of March 2025, after assets outperformed its DB liability proxy by 14.1 per cent per annum over the five years to 31 March 2025.

This means that the DB scheme is around 116 per cent funded on a technical provisions basis, based on monitoring of the 2023 valuation. 

The report also suggested that the in-house investment team at USSIM continued to drive "significant" cost advantages, with the latest independent analysis by CEM Benchmarking revealing that the scheme’s annual investment management costs were the equivalent of £86m a year lower than the median global peer pension fund. 

USS’s membership has also continued to grow, now standing at almost 577,000 people (234,000 active, 250,000 deferred, 93,000 retired), and the number of people choosing to opt out of the scheme (around 10 per cent) is at the lowest level on record.

USS Board chair, Kate Barker, highlighted the latest update as evidence that there are grounds for "cautious optimism" about the outcomes the scheme’s next full actuarial valuation might produce.

“The scheme’s funding is in a strong position at present, with the next actuarial valuation due in 2026," she stated.

"The DB part of the scheme has an estimated £10 billion surplus – indicating that our long-term investment strategy, broadly supported by employers who responded to a consultation last year, is doing the job it is designed to do.”

Barker acknowledged that the past few months have been a "salutary reminder" of how much can happen in a short period, and the increasingly uncertain times faced by schemes.

However, she said that this estimated surplus provides a potential buffer against adverse experience between now and 31 March 2026.

And work to further future-proof the scheme is also underway, as Barker confirmed that, following previous volatile valuation outcomes, since the early stages of the 2023 valuation, stakeholders have been exploring how the scheme might be put on a more
stable footing in future valuations through a dedicated working group of the Joint Negotiating Committee (JNC).

As part of this work, the group has been exploring the opportunities and challenges of a conditional indexation benefit design, with the first report from the Conditional Indexation Sub Group (CISG) also published recently.

The first of two reports expected this year from the CISG, the interim update recommended continued exploration of conditional indexation, highlighting specific areas for further exploration.

In particular, the joint working group of UCU and UCEA representatives is exploring whether by making annual increases to benefits conditional, there is the ability to better
manage contribution volatility, and target better overall outcomes.

It is also considering the risks associated with such a structure and the extent to which these are fair, understandable and acceptable to all involved.

Broader issues impacting stability and benefit design, for example valuation methodology, are also being considered by the Stability Working Group, with any work on conditional indexation intended to complement rather than replace this work.

Indeed, the USS said that an appropriate valuation methodology and clarity on how this would impact outcomes is critical to the success of CI.
 
Alongside the funding updates, the USS also highlighted recent climate progress in its Task Force on Climate-related Financial Disclosures (TCFD), which revealed that the emissions intensity of its portfolio declined by 51 per cent between 2019 and 2024.

This is well ahead of its interim net-zero target of a 25 per cent decline by 2025 and in line with its ambition for its investments to be net zero by 2050, if not before.
 
However, it admitted that this progress has not been matched by “real-world emissions”, which continue to rise, arguing that more needs to be done to slow down or reverse the rise in global temperatures.
 
In a blog post, USS Investment Management (USSIM) chief executive, Simon Pilcher, said: "Reducing our portfolio emissions is not enough on its own. If the real world doesn’t transition alongside this then the systemic risks from climate change will only grow, which could impact the long-term returns we need to pay pensions.

"Much more needs to be done, and quickly, to slow down or reverse the rise in global temperatures, and we all have a part to play – pension funds, investors, policymakers and governments alike. For us, we’re committed to taking meaningful action in the areas where we can have an impact."

Pilcher also stressed the need for the government to ensure there is a steady pipeline of investible opportunities that support the transition to a low-carbon economy.

"We also need consistent and joined-up regulation, and a stable policy environment," he stated. "This will require the UK and other governments to have the right financial and non-financial incentives that encourage companies to move towards a low-carbon future."

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