The leader of the Universities Superannuation Scheme (USS) has suggested the possibility of pension benefit improvements after a recent assessment indicated “a significantly improved financial position”.
Bill Galvin, USS group chief executive, said that the interim monitoring report – which is not part of formal decision making – showed “the scheme’s funding position is more resilient and moving in the right direction”.
Interim monitoring of the scheme found the scheme had a technical provisions deficit of £1.6 billion as of 31 March 2022, a significant improvement from the 2020 deficit of over £14bn.
The scheme trustee largely attributed the recovery to high equity returns. Scheme liabilities, however, have risen due to inflation and pessimistic future expected returns relative to gilts.
The University and College Union (UCU) has urged university bosses to “use the scheme’s vastly improved financial performance to give staff a fair deal”.
UCU general secretary Jo Grady said cuts to pensions imposed earlier this year “were predicated on a valuation that was conducted in March 2020 at the height of the pandemic, as markets were crashing”.
The timing of the valuation meant the trustee had “wildly underestimated the enduring strength of the scheme”, she argued, calling on university leaders “to harness this much-improved position, preventing any more damage being done to our members’ hard-earned pensions”.
However, the changes introduced this year have reduced the scheme’s liabilities. The trustee said that without the scheme’s new benefit structure, which placed a 2.5% cap on inflation-linked benefit increases from the beginning of April 2022, the technical deficit would have been £3.1bn.
Wrote Galvin: “It must be the case that 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.”
“Were such a scenario to play out, it may be possible for the [Joint Negotiation Committee] to consider increasing benefits or decreasing contributions — or some combination of both.”
A spokesperson for USS employers, who proposed the pension cuts pushed through earlier this year, said the monitoring report vindicated the changes.
“Without the reforms, the latest data from USS shows that total contributions would have to be much higher than the current level of 31.4% – in excess of 36% for future benefits, with deficit recovery costs in addition.
“The continued improvement in the scheme’s financial position, however, only relates to a short period and the situation remains volatile. Consistently better scheme performance over the next ten months leading up to the scheduled valuation in March 2023 could make a real difference and allow for improved benefits, lower contributions, or a combination of both.”
The trustee said it would conduct a more detailed assessment of the scheme’s finances – stopping short of conducting a new valuation – and share the findings with the sector in early July. A new valuation could begin as early as March 2023, which offers the potential “that any improvements might be implemented more quickly,” said employers.