On March 31, "coronavirus was sweeping across the world and financial markets were hugely uncertain about the potential outcome," said Bill Galvin, USS group CEO, in a statement accompanying the report. "Even before COVID-19, historically low interest rates, increased life expectancy, greater regulation and volatile financial markets had already made promises of a set retirement income for life more expensive."
Mr. Galvin added that the depth of the economic shock brought about by the coronavirus pandemic "has highlighted the long-term challenges facing open DB pension schemes like USS; challenges that we intend to work with our stakeholders."
However, according to a financial management plan monitoring report, which is used by USS' trustees to track the financial development of the fund, the deficit had ballooned on a technical provisions basis to £20.2 billion as of June 30. The monitoring reports are high-level temperature checks or indicators of how key financial assumptions made for USS' 2018 valuation are panning out, a spokeswoman said.
While executives are reviewing all of USS' funding assumptions for its 2020 valuation, "the direction of travel being signaled by the monitoring reports is clear: Events have not moved in our favor, and in very material ways," the spokeswoman said in an email. "Historically low interest rates have compounded the long-term challenges presented by increased life expectancy and volatile financial markets."
The DB fund's asset allocation as of March 31 was 38.4% listed equities, 26.9% index-linked bonds, 21.9% other private markets, 11% other fixed income, 6.5% nominal government bonds, 5.5% real estate, 2% absolute return and 1.1% commodities. Cash and overlays account for 13.3% of allocations.
Looking ahead, executives "are continuing to navigate our way calmly through this difficult period," the report said.