Next USS valuation ‘could come sooner’ as pension fund value soars

The next valuation of UK higher education’s biggest pension scheme could come sooner than expected following improvements in the fund’s financial position.

The latest monthly monitoring report produced by the Universities Superannuation Scheme, which covers the period up to the end of March, estimates the fund’s deficit to be £1.6 billion, down from £14.1 billion at the time of the last valuation two years earlier. The scheme’s assets are believed to have increased by £22.3 billion over the same period.

The size of the deficit – and how to close it – has been at the heart of a long-running industrial dispute, with staff at 19 universities currently participating in a marking boycott. USS pension benefits were cut last month as vice-chancellors battled to stop combined employer and staff contributions soaring above the current level of 31.4 per cent.

But the latest monitoring report suggests that the outstanding deficit could be managed on total contributions as low as 24.7 per cent.

The USS and Universities UK, which represents employers, stressed that without the recent benefit cuts, contributions would have to be much higher – in excess of 36 per cent – even on the improved data.

Bill Galvin, the USS’ chief executive, acknowledged that that the results “indicate that the scheme’s funding position is more resilient and moving in the right direction”.

“If the positive experience we’ve monitored over recent months becomes more established, there is potential for better news at the next valuation than at those of the recent past, and we would welcome that,” Mr Galvin said in a note to members.

“Were such a scenario to play out, it may be possible for the [joint negotiating committee] to consider increasing benefits or decreasing contributions (or some combination of both).”

The USS is now undertaking what UUK described as “a more detailed assessment as to whether the improved monthly monitoring could translate into a materially better outcome”, which should be available at the end of July.

“There’s also the possibility of starting work earlier on the scheduled March 2023 valuation so that any improvements might be implemented more quickly,” UUK said in a statement.

“We are seeking clarification from the USS trustee about the short- and medium-term options that might be available should the positive financial position continue, but without having to undertake an earlier full valuation.

“We know a new valuation would take many months and divert focus away from fundamental reforms such as developing lower-cost options for members, considering alternative scheme designs, and conducting a thorough governance review of USS.”

UUK said it would “keep in close dialogue with USS over the coming months”.

Writing on his blog, Michael Otsuka, professor of philosophy at the London School of Economics and an expert on the USS dispute, said that in light of the new data, UUK and the University and College Union should request “a new recovery plan that reflects the funding position of the scheme as at 31 March 2022”, and call for “retroactive restoration of the benefits that were cut on 1 April”.

chris.havergal@timeshighereducation.com