The coronavirus pandemic continues to have far-reaching consequences for higher education after it was revealed that the sector’s largest pension scheme has been rocked by stock market volatility.
It was revealed yesterday that the Universities Superannuation Scheme (USS), which has more 400,000 members in the higher education sector, reported itself to the Pensions Regulator because the value of its investments plunged on the stock market.
The USS has referred itself to the watchdog because it breached its self-sufficiency ratio for five consecutive business days on Tuesday 17 March. Self-sufficiency levels are monitored to ensure large pension schemes, which are sustained by assets invested on a low-risk basis, can continue to pay members’ benefits without additional support from employers.
“Under a self-sufficiency approach, the ongoing reliance on the sponsoring employer is kept at a minimal level. This requires a low-risk investment strategy to minimise the chances of the employer having to make good any investment losses,” the Pension Regulator states.
But volatility in the worldwide financial markets, brought about by the coronavirus pandemic, has sent the value of investments crashing down, forcing schemes like the USS to signal that cash might be needed if disruption persists.
The BBC reported on 12 March that £160.4bn was wiped off the UK market in the worst day of trading since 1987. Defined benefit (DB) pension schemes investments have plummeted, which caused DB scheme deficits to increase by £100bn in the last week of February, according to analysis from Hymans Robertson.
Our pension promises are secure because they are supported by the strength and longevity of employers in the UK higher education sector
– USS spokesperson
The USS scheme must now inform the regulator and consider what action, if any, is appropriate. The trustee board is to consider the issues when it meets next week.
USS said that it was “looking at a short-term response, which might include increasing employer contributions and/or supporting employers to reduce their liabilities”.
A USS spokesperson said: “Our pension promises are secure because they are supported by the strength and longevity of employers in the UK higher education sector. It is important these sponsors are clear on the funding position and on their commitment to the scheme should our assumptions prove inadequate.
“Our current view is that Covid-19 will have a very significant near-term impact but is less likely to have a material impact as we look further out. However, market conditions mean that any forward look is challenging, and will take time to work through, which is the focus of the 2020 valuation.”
The USS scheme would approach its forthcoming 2020 valuation with a “calm and considered approach to assessing current conditions and any changes to the long-term outlook,” a spokesperson said. As at 12 March, valuation figures showed USS assets of £68.2bn (€72.8bn), technical provision liabilities on a Gilts-plus basis of £80.3bn, and self-sufficiency liabilities at £105.6bn.
In an update to employers, USS chief executive Bill Galvin wrote: “We recognise that there will be significant and understandable concerns among our sponsoring employers and membership in general, particularly as we approach 31 March 2020”.
“We will not rush to judgement on how to deal with the current circumstances. We will remain vigilant,” Galvin added.