Bonuses at the university sector’s main pension fund have soared, even though its deficit has grown by £1.8 billion.
The annual report of the Universities Superannuation Scheme says that the shortfall between its assets and the value of pensions due to members was estimated to be £10 billion at the end of March, compared with £8.2 billion last year and predating any negative effect of the Brexit vote on pensions schemes.
The health of the fund is due to be reassessed in 2017 and Bill Galvin, its chief executive, said that it was “too early” to say whether contributions from employers and employees would need to be increased.
Despite the expanding deficit, the annual report reveals that the value of bonuses paid to staff rocketed from £10.1 million to £18.2 million last year, with the vast bulk going to the scheme’s investment team.
This contributed to the number of USS employees earning more than £200,000 once salary and bonuses are combined increasing from 29 to 51 year-on-year.
Thirteen staff earned more than £500,000, up from three the year before. While the highest-paid employee in 2014-15 received between £900,000 and £950,000, last year one worker earned about £1.6 million, with another on about £1.4 million.
Mr Galvin told Times Higher Education that the increases reflected a decision to take investment activities in-house that were previously outsourced, and strong investment performance that meant that the deficit was £2.2 billion smaller than it would otherwise have been.
“Although bonuses to the investment teams have gone up, it reflects the fact they have contributed very substantially to keep the deficit from being in a worse position than it is,” Mr Galvin said. “We are delivering a very good value pension scheme, better than any other comparable schemes we have benchmarked.”
The report shows that Mr Galvin’s total remuneration, including pension contributions, increased by 12 per cent in 2015-16, from £432,000 to £484,000.
This comes after a summer of strike action by academics – many of whom will be USS members, particularly at pre-92 universities – over an offer of a 1.1 per cent pay rise for 2016-17.
The increased deficit means that the scheme’s pensions are now estimated to be only 83 per cent funded, compared with the 90 per cent figure predicted by the last revaluation in 2014.
Mr Galvin said that the assumptions made two years ago had been “reasonable”, but that asset values had not kept pace with declining interest rates.
The last revaluation led to the closure of the USS’ final salary pension scheme and an increase in contributions by employers and employees, but Mr Galvin said that a long-term assessment would be taken to determine if further changes were needed.
“Some of the things that will be relevant in the 2017 valuation have gone against [us] in terms of the assumptions we made at the last valuation,” Mr Galvin said. “That is a signal and we will consider what we should do about that…[but] it’s too early to say whether we do need to make any response or what that response might be.”
Mr Galvin added that, while an increase in liabilities since Brexit had been “broadly balanced” with an increase in the value of assets, it was “much too early” to determine the longer term impact of the UK leaving the European Union on the fund.