The Universities Superannuation Scheme’s (USS) funding surplus has more than doubled over the past three years to £16.9bn, with the scheme’s provisional 2026 triennial valuation showing it to be 127 per cent funded.

The results, published as USS launched a consultation with the Universities and Colleges Employers Association (UCEA), compared with a £7.4bn surplus and funding level of 111 per cent at the 2023 valuation.

USS’s assets increased by £6.7bn over the period to £79.8bn, while its technical provisions liabilities fell from £65.7bn to £62.9bn.

The scheme attributed the improvement to favourable financial market conditions, higher expected investment returns and strong performance from its growth assets relative to its liabilities.

The provisional valuation also put the future service cost of providing members’ current benefits at 16.4 per cent of salaries, below the existing overall contribution rate of 20.6 per cent.

USS said the strengthened funding position meant the scheme could support the continuation of current benefit and contribution levels, while also providing scope to consider other options.

These could include reducing contributions to the future service cost, or to a level between the current rate and that cost; using part of the surplus to subsidise contributions; increasing future service benefits; or using some of the surplus to improve previously accrued benefits.

However, USS stressed that the valuation results were provisional and that the overall contribution rate would be determined by the trustee after considering UCEA’s response and the scheme actuary's advice.

The Joint Negotiating Committee (JNC) would then be responsible for deciding how any change should be reflected in member and employer contribution rates or benefits.

The scheme noted that maintaining the current contribution rate and investment strategy could increase the surplus by around £2.5bn a year, assuming expectations were borne out.

USS’s modelling estimated that, under the current investment strategy, the probability of a deficit emerging over six years would increase from 5 per cent under the current 20.6 per cent contribution rate to 7 per cent if contributions were reduced to 16.4 per cent.

The latest valuation is USS’s first under the new defined benefit funding regime, which applies to valuations with effective dates on or after 22 September 2024.

USS has consequently proposed changes to its valuation methodology, including a three-leg approach covering best-estimate results, technical provisions and contingency measures.

The scheme’s best-estimate position showed a surplus of £25.5bn and a funding ratio of 147 per cent, compared with £15.6bn and 127 per cent respectively at the previous valuation.

USS was also 113 per cent funded on its self-sufficiency measure, with a £9.1bn surplus, compared with a £5.1bn deficit and funding ratio of 93 per cent in 2023.

USS chair of the trustee board, Dame Kate Barker, said the sustained surplus provided an opportunity to consider the scheme’s future strategic direction.

“The current strong funding position presents an opportunity to put USS on a long-term stable footing, which would be consistent with what the sector said it wanted to achieve at the 2023 valuation," she stated.

"This was also a major theme in early discussions on the 2026 valuation.

“But there are choices to be considered, so it is important the sector is clear about what it wants to achieve - and what it wants to avoid - at this valuation and over the long term."

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