Employer and participant contributions to the Universities Superannuation Scheme, London, are set to increase under new proposals.
USS outlined in an update changes under its "cost-sharing process," which kicks in when the £60 billion ($78.8 billion) fund's joint negotiating committee fails to agree on the future of the fund. A number of proposals have been made over recent months following a 2017 valuation showing a funding deficit of £7.5 billion and a funded status of 89%.
"The cost-sharing process will mean an increase in contributions for everyone that pays into USS," said the update.
The proposed changes would see participant contributions increase to 8.8% starting April 1, 2019, from a current 8%. Further increases will then be phased in, to 10.4% at Oct. 1, 2019, and 11.7% at April 1, 2020.
Employer contributions are also set to increase, to 19.5% starting April 1, from 18%. The contribution will then increase to 22.5% starting Oct. 1, 2019, and 24.9% starting April 1, 2020.
Participants earning over a set salary threshold, at £57,216.50 for the financial year 2018 to 2019, are enrolled into a defined contribution plan for savings related to excess salary. Participants contribute 8% to the £800 million USS Investment Builder, with employers contributing 12%.
Under the changes, a 1% employer matching contribution on any additional voluntary employee contributions into the DC section of the plan would be discontinued, starting April 1, 2019.
The changes are necessary given USS' estimate that the pension fund needs an additional £900 million every year in contributions from participants and employers, in order to continue to offer current benefits in the future. Combined contributions would increase to 37.4% from 26%.
"We have proposed to phase in the increase, to help members and employers prepare and to afford the (joint negotiating committee) time to consider changes that could be introduced before the higher increases come into effect," said USS.
A 60-day employer consultation period will begin in September on the proposals.