USS Statement on Pensions
Just in case you missed their announcement posted on 1st November
“Recent coverage of USS in the media – an update for members
You may have seen recent coverage of USS in the media, in particular on scheme funding and the current deficit. We want to ensure that you understand the trustee company’s assessment of the
current situation, and the ongoing work we are involved in with member and employer representatives to enable the scheme to deliver good quality pensions for the long-term.
As you know USS is one of the largest pension schemes in the UK; it has assets of approximately £40 billion and is supported by nearly 400 UK universities and related employers. Given its size and scale it is inevitable that there will be media interest and speculation about its funding position. The scheme currently has a deficit, which, as we have previously reported, was £11.5bn at the end of March 2013 and £7.9bn at the end of June 2013 on a scheme-specific funding basis. The value of the deficit changes because there remains a great deal of volatility in financial markets, this continues to make managing scheme deficits challenging for most defined benefit pension schemes. Much of the media coverage in recent days has focussed on scheme funding, how it is measured, and what the trustee is doing about the deficit.
The trustee board measures scheme funding in a number of ways in order to give the fullest picture to scheme members. There is no single definitive way to measure the cost of providing a pension. Trustees must use their judgment and expertise to value these liabilities, taking the best advice available, to do this.
The trustee board devotes considerable time to overseeing the scheme’s funding plan, and assessing its ongoing suitability in the context of current market conditions, the financial health of the sector and scheme demographics.
In USS we explain scheme funding to members on two main bases, one which is specific to the scheme and includes a prudent assumption of return on investments and one which is based on the current rate of UK government bonds, the value of which changes frequently, which in turn affects the value of the deficit. We have continued to use this latter basis as a more demanding measure and reference point, although it’s not required by legislation. We use other bases in specific circumstances. One of these is the FRS17 accounting basis, and we report each year to institution finance directors the funding ratio on this basis, because that is used by some institutions in their financial accounts. Some have suggested it should be used as a basis for deciding the correct level of contributions.
We feel that this approach is too simple and the right way to make these decisions is to look at scheme funding holistically. Our scheme-specific assessment considers the financial strength of the employers, the membership of the scheme, and the investment strategy. This measure includes a level of expected investment return above UK government bonds, and if the trustees have a reasonable expectation of these investment returns then not taking them into account when calculating the funding position of the scheme would mean higher contributions for current members and employers than is necessary.
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