Universities Superannuation Scheme, London, is set to increase its contribution rates as of Oct. 1 following a six-month negotiation between employers and unions.
The £67.6 billion ($93.7 billion) fund's employer contribution rate is expected to grow to 21.4% of payroll, while the employee rate will grow to 9.8%, from 21.1% and 9.6%, respectively, according to a spokesman.
Under a previous plan, contribution rates were to go up to 23.7% for the employer and to 11% for the employees to counter a funding gap of £3.6 billion, which was estimated during the 2018 valuation. As of March 31, the deficit jumped to £14 billion.
The changes are still subject to a two-week consultation with Universities U.K., which represents USS employers.
While the plan will remain open to new participants, Universities U.K. said that only relying on contribution increases is not sustainable.
A joint negotiating committee made up of University College Union appointees (which represent participants) and Universities U.K. appointees, which was set up in 2018 to respond to the funding challenges, also agreed on a slower the pace at which pension promises will be built up starting April 1, 2022.
For salaries up to £40,000, the annual rate at which defined benefits will be built up will be reduced from 1/75 of salary to 1/85. Participants with salaries above the threshold will be able to accrue benefits in their individual DC account instead. USS is a hybrid plan with defined benefit and defined contribution features.
The committee also decided to limit the extent to which benefits are protected from inflation, based on the consumer price index, by capping the annual uplift applied to future benefits at 2.5%.
"We understand that the decisions faced by the Joint Negotiating Committee, and its members who represent UCU and UUK, have been difficult. We are also very much aware of the value members place on 'guaranteed' pension outcomes, and that any reduction in such guarantees is unwelcome," Kate Barker, chairwoman of USS trustees, said in a news release Monday.
"But the detailed and lengthy analysis underpinning the 2020 valuation has confirmed that the price of such certainty — of a set, inflation-protected income for life in retirement paid no matter what happens to the economy or the higher education sector in the future — is much more expensive than in the past," she added.