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  2. PENSION FUNDS
March 03, 2021 08:34 AM

USS contributions need to rise sharply amid huge jump in deficit

Sophie Baker
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    USS CEO Bill Galvin
    Bill Galvin, CEO of USS, where the deficit has ballooned fourfold in two years.

    Contributions to the Universities Superannuation Scheme, London, need to “rise sharply” if existing benefits are to be maintained, the pension fund said in a news release.

    Increases are also needed to make "a substantial amount of recovery contributions" under different scenarios, the release added.

    USS’ deficit on a technical provisions basis grew to £14.9 billion ($18.5 billion) to £17.9 billion as of March 31, 2020, depending on the scenario used to value the shortfall. As of March 31, 2018, the deficit was £3.6 billion. USS had £67.6 billion in assets as of March 31, 2020.

    “This reflects that expectations of future investment returns are now lower than assumed in the past,” the news release said.

    The pension fund’s joint negotiating committee, which represents employers and participants, has set out a series of increases in contributions necessary to maintain current benefits. The forecasts reflect persistent low interest rates and reduced expectations of future investment returns, USS said. The overall contribution rate is currently 30.7%, which was already set to rise to 34.7% starting Oct. 1, to help plug the 2018 deficit valuation.

    Under the most favorable scenario, with the deficit at £14.9 billion and sufficient additional support from sponsoring employers to enable USS to fund the plan, overall contributions would need to rise to 42.1% starting Oct. 1, a trustee update document said.

    Under a scenario where the deficit sits at £16.1 billion and additional support is provided, contributions need to rise to 49.6% of payrolls starting Oct. 1.
    And under a scenario for which the deficit sits at the top end of the range, at £17.9 billion, with no additional support provided, overall contributions need to rise to 56.2% starting Oct. 1 to help plug the deficit and maintain benefits.

    Universities U.K., which represents USS employers, plans to consult with employers on support measures, contributions and benefit options later this month, USS said. The trustees will review funding assumptions according on the outcome of the consultation.

    USS had been due to complete its latest valuation by June 30. It has informed The Pensions Regulator, however, that’s not possible, given the need to consult with employers and employees about the likely changes. The valuation process is now expected to conclude late this year or early next year.

    Reacting to the USS update and warnings, Universities U.K. warned: “The very high prices for current benefits put forward by the USS Trustee are unaffordable for employers, risk pricing even more staff out of the scheme, and undervalue the collective and enduring financial strength of the participating employers.”

    A news release citing a spokesman said it is “vital that contributions to the scheme are affordable and sustainable for staff and employers alike and that reform is necessary.”

    However, stronger and clearer justification is needed regarding the “very high pricing decisions.”

    The University and College Union — which represents participants, said in a news release that USS’ update “risks endangering a healthy pension scheme.”
    USS is “having an overly pessimistic view of the higher education sector and not taking proper account of its growing asset base,” the release added.

    UCU also noted that there has been “plummeting member satisfaction levels with USS,” while CEO Bill Galvin’s salary and benefits rose by almost £30,000 to £486,410 last year and he received a £212,009 bonus — more than double his bonus in 2019.

    Mr. Galvin's salary and bonus were detailed in the fund's annual report in August. A USS statement at the time said: “The remuneration of all USS employees is benchmarked against comparable roles, under the oversight and scrutiny of the trustee board, and reflects the skills and expertise required for each role and recruitment in a very competitive financial services sector.”

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