University staff could be ‘priced out’ of pension scheme that has a sizeable deficit and is seeking ‘further financial commitments’ from employers and savers.
In a 2020 valuation report published today, the trustees of the Universities Superannuation Scheme (USS), the UK’s largest private pension fund, revealed a deficit of between £14.9bn to £17.9bn at 31 March 2020.
It said even the most favourable solution would require the overall contribution rate from employers and members combined to rise to 42.1% of payroll, from the current 30.7%.
Contributions are already set to rise to 34.7% from October 2021, with employers contributing 23.7% and “active members” contributing 11%.
Dame Kate Barker, chair of the USSL trustee board, said: “We fully recognise the scale of the challenge facing the scheme and sympathise with our employers and members in light of the difficult decisions that lie ahead. Trends in financial markets have made the valuable pension promise offered by USS – a set inflation-linked income for life in retirement, regardless of what happens to the economy in future – much more expensive today than in the past.
“I believe everyone involved with USS wants to find a way forward, consistent with our legal and regulatory duties, that provides valuable and secure pensions, and that puts the scheme on a sustainable footing.”
Barker added that the USS trustees were in discussions with Universities UK – the body that represents higher education employers – and the University and College Union (UCU).
Commenting on the report, Universities UK said: “The very high prices for current benefits put forward by the USS trustee are unaffordable for employers, risk pricing even more staff out of the scheme, and undervalue the collective and enduring financial strength of the participating employers.
“Employers understand that the USS has a sizeable deficit and that a high number of staff on lower grades opt out because the contributions are too expensive for them. It is important that USS is designed so that people in early career can also access an affordable pension. This means it is vital that contributions to the scheme are affordable and sustainable for staff and employers alike and that reform is necessary.”
The UCU said there were flaws in the way the scheme had been valued and said the trustees had an “overly pessimistic view of the higher education sector”.
It said the scheme “receives more in contributions annually than it pays out” and noted that its asset base had doubled in size since 2011.
UCU general secretary Jo Grady said: “USS chief executive Bill Galvin was awarded an eye-watering bonus last year, but USS members who have worked so hard during the pandemic are being told that either contributions have to go up or benefits must go down.
“After a decade of pay and conditions being degraded, many precarious and low paid higher education workers can no longer afford to be USS members. Even more will quit if contribution rates go up further and this will endanger the health of the scheme as a whole.”