USS to proceed with March valuation; deficit rises to £11bn

The University Superannuation Scheme (USS) has confirmed it will proceed with its 31 March 2020 valuation as planned, despite recently triggering a funding measure breach.

In a letter to the heads of participating USS institutions, USS group chief executive, Bill Galvin, also revealed that the scheme's technical provisions deficit had risen to over £11bn "in recent days".

He confirmed that the board of trustees had decided against taking any “immediate short-term action” in response to the trigger event, considering the “uncertainty of current conditions”.

He added, however, that the trustee board would “continue to monitor the situation closely”.

The scheme recently reported itself to The Pensions Regulator (TPR) after market volatility saw it breach 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.

The scheme’s technical provisions deficit has also been hit by the “very volatile” market conditions and has “substantially” increased from the £3.6bn established in the 2018 valuation, measuring over £11bn.

A USS spokesperson added: “In common with our peers, we are dealing with extremely difficult short-term conditions – but any decisions we take now should be consistent with our long-term strategy to secure members’ benefits and protect the sustainability of the scheme.

“This will allow us to re-assess the support available from our sponsors, the outlook for future investment returns and the contribution increases scheduled from October 2021.

"We will also have 15 months to reflect on subsequent developments in financial markets and the HE sector.

“We recognise the challenges presented by COVID-19 and will keep the valuation timetable and process under regular review, being flexible where we can.”

This update should see the scheme set to meet the statutory deadline for the valuation to be filed with The Pensions Regulator (TPR), of June 2021, although both the schemes’ 2017 and 2018 valuations were filed “well after the statutory deadline”.

Galvin emphasised that proceeding as planned meant no further immediate action would be needed in response to the significant impact current conditions are having on the scheme’s funding.

He added that it would also avoid short-term actions that could have “much broader consequences for the sector”.

In response to the announcement, a spokesperson for the University and College Union said: “The board decided last week that there would be no immediate contributions increase, but that they are pressing ahead with the current valuation.

"We are unconvinced that pushing ahead now in the current circumstances is the best move and have asked for more details behind the decision.”

The scheme update follows updated COVID-19 guidance from the regulator, noted in Galvin’s letter, which gave trustees discretion to delay scheme valuation's by up to three months.

USS has also reiterated the importance of proposals within its recently published technical discussion document, which seeks opinions on proposed changes to its 2020 valuation methodology.

Included in the proposals was a rule change on employer exits that the USS stated would “reinforce” sponsoring employers’ commitment to the scheme.

Galvin added: “Current conditions illustrate starkly how important this is: without a rule change, we will need to reduce our appetite for investment risk.

“This will have a material impact on the valuation outcome. This was a critical factor in concluding the 2018 valuation and is the most important issue for us in carrying out the 2020 valuation.”

Further information is expected to be shared with Universities UK (UUK) shortly on the rationale for the measures, and the need for a permanent rule change to ensure the scheme enters a technical provisions consultation on the strongest possible basis.

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