USS reports smaller deficit, 9.55% return for fiscal year

Universities Superannuation Scheme, London, reported a smaller deficit and a 9.55% return for its fiscal year ended March 31, according to its annual report.

Total assets reached £90.8 billion ($119.2 billion) compared to £82.2 billion the previous fiscal year. Defined benefit assets were £88.9 billion and defined contribution assets were £1.9 billion. USS participants make up more than one-fifth of the roughly 1 million people still contributing to corporate U.K. DB funds.

Strong investment performance saw the USS deficit reduce to £1.5 billion from £14 billion the previous fiscal year. The 9.55% return was above benchmark and above the five-year benchmark.

USS noted in a news release that it saved £101 million by managing most investments in-house, based on an independent analysis of global peers.

"This is a long-term trend; over the last five annual independent benchmarking reports, USS has been assessed as being 24% less expensive – equivalent to £384 million cheaper over that period," it said.

That in-house approach allowed USS to manage assets "at a materially lower cost than our peers while delivering very good performance," and to make significant advances in response to climate change, while improving member services, USS CEO Bill Galvin said in the release. Despite volatile market conditions over the last 12 months, "the scheme is in a significantly better position in many different ways," he said.

Mr. Galvin recognized participants' concerns over higher contributions and benefit reductions triggered by a controversial 2020 valuation. USS trustee board chairwoman Dame Kate Barker said in the release that the benefit changes have put it "on an affordable and more stable footing," and the pension fund could be on track for a more robust funding position that would allow for more positive discussions with Universities U.K. representing employers and the University and College Union representing plan participants.

"We are committed to working with UUK and UCU as they consider some important programmes of work: exploring lower cost options, considering different benefit structures (such as conditional indexation), and reviewing the scheme's governance arrangements," she said.

The annual report prompted UCU officials to criticize Mr. Galvin's £100,000 bonus and £480,000 salary detailed in the annual accounts. In a separate statement, UCU general secretary Jo Grady called it "a disgraceful show of excess" as plan participants manage the impact of the benefit cuts.

In its own statement responding to the criticism, USS said that remuneration is benchmarked against comparable roles, and the CEO compensation reflects a competitive financial services sector. Mr. Galvin's incentive bonus covers long-term incentive awards vesting over three to five years, not an annual performance bonus, USS said.

In the same response, Ms. Barker said that the latest account "demonstrates that USS is a very well-run pension scheme, outperforming its targets and benchmarks across investments and pensions administration."

While understanding participants' concerns, "we have had to make very difficult judgments to ensure members' pensions are secure and can safely be paid in almost all potential futures, without threat to the financial stability of the institutions that ultimately stand behind the pensions being promised," she said.