Defined Benefit  

Universities plan to tackle growing pension scheme deficit

Universities plan to tackle growing pension scheme deficit

Employers and members of the Universities Superannuation Scheme (USS) will need to increase their contributions around 6 to 7 per cent to maintain what they get from their current defined benefit (DB) schemes.

This is the initial view of the USS trustees, based on proposed assumptions, to fill the gap created by a £12.6bn deficit.

However, it is beyond what universities are willing to pay.

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This information was disclosed by Janet Beer, president of Universities UK, the representative body for universities, and vice-chancellor of the University of Liverpool, in her response to a letter sent by MP Frank Field.

Mr Field, who chairs the parliament’s work and pensions select committee, wrote to ministers, the pension regulator and the trustees of the scheme in an effort to understand why the scheme deficit has increased £7.3bn in three years.

Mr Field said that increasing tuition fees to pay for the sort of defined benefit pension entitlements student’s themselves will likely never enjoy strikes him as unfair.

Ms Beer said that, according to information from the USS trustees, pension costs have increased by around a third due to continuing low interest rates, lower expected asset returns and increasing longevity.

USS trustees are currently conducting a triennial valuation, which will update the deficit values published in the scheme’s latest annual report.

In his letter to Mr Field, David Eastwood, vice-chancellor of the University of Birmingham and chair of the USS board of trustees, said that this valuation will “provide a more measured perspective on the impact of low gilt yields on the long-term funding position”.

He said: "The updated deficit position is unlikely to be as large as the inter-valuation monitoring figure and will remain within affordable levels for our sponsoring employers."

However, the "increased cost of future accrual of defined benefits, as a consequence of lower expected returns from all investment classes, is likely to be a bigger challenge for our stakeholders […] to address," he added.

USS trustees and Universities UK are now entering a consultation period to discuss the technical provisions and contributions required to provide the current benefits and address the deficit, he said.

Lesley Titcomb, chief executive of The Pensions Regulator, also wrote to Mr Field, explaining that the regulator has monitored the scheme closely since 2010, and will continue to engage with USS.