Higher education’s second-largest private pension provider is set to close its final salary scheme next year to help eliminate a multimillion-pound deficit.
The Superannuation Arrangements of the University of London (Saul), which has about 38,000 members, is taking the action because its deficit is predicted to soar to £310 million this year, up from just £75 million in 2011.
The fourfold increase in its deficit leaves the scheme, which is used by professional support and technical staff at colleges associated with the University of London, only 88 per cent funded, a consultation paper on the proposed changes says.
A similar rise in the deficit of the sector’s largest pension scheme, the Universities Superannuation Scheme, led to the closure of its final salary scheme.
Both funds have blamed their larger deficits on the state of the financial markets rather than on their investment performance.
Saul’s investment return of 10.3 per cent over the past five years was “better than expected”, a spokesman said, but its deficit had ballooned as liabilities had risen more sharply because of “low gilt yields and [because] people are living longer”.
Similar to the USS, any changes to Saul, which also covers staff at the universities of Essex and Kent, would take effect from April 2016.
Benefits accrued up to that point would be protected, with all future benefits from April 2016 accumulated on a career average basis.
Closing the final salary arrangements will also bring to an end a two-tier system introduced in 2012, in which new members were enrolled in an enhanced career average scheme.
Unlike the USS, however, Saul members’ contributions will not increase from their current rate of 6 per cent of salary, although employer rates will rise from 13 per cent to 16 per cent.
The proposed changes, agreed by employers and trade unions, aim “to keep high-quality defined benefits at a cost that is affordable for Saul members and employers, therefore helping ensure we have a sustainable fund”, a spokesman said.
The publication of Saul’s proposed reforms this month coincides with the rubber-stamping of the USS changes by its trustee board.
Asked to consider the results of a three-month consultation on plans agreed by employers and the University and College Union, no substantial changes were put forward, USS confirmed.
A USS spokeswoman said modifications that were made included "changes to the way the investment-management charges on the defined contribution section will be applied; new arrangements for those promoted or re-graded into a USS-eligible post; and a confirmed intention to provide access to benefits from the defined contribution section to those aged 55 or over without having to retire".
"A more detailed explanation will be made available for those affected by the changes,” she added.