Pension valuation proposals offer positive outlook

USS pension contributions could fall and employee member future benefits increase under initial proposals put forward ahead by Universities Superannuation Scheme (USS).

The USS Trustee has launched an employer consultation as part of its ongoing valuation process which will complete next year. It states that thanks to a healthier financial position, contributions could be reduced to 6.1% for members (from 9.8% currently) and 14.5% for employers (from 21.6% currently) for at least the next three years, with an increase in future benefit accrual back to 2022 levels.

This represents a reduction of the total joint employee and employer contributions to 20.6%* of salary, from the current 31.4%. If benefits were not increased, the joint contribution rate could be even lower, at 16.2%.

USS reported in May 2023 that the financial outlook for the fund had markedly improved, going from a deficit of -£14.1bn to a potential surplus of +£7.6bn.

The technical consultation of employers will be needed to agree a set of assumptions that will form the basis of the new, full 2023 valuation.

Pension trustees are required by law to conduct a full valuation at least once every three years. The 2023 valuation is based on a snapshot of the pension scheme on 31 March 2023, though the final outcome will consider the wider long term financial climate and what’s happening in the higher education sector.

Next steps

The University will submit feedback to Universities UK (UUK), who then collate a response to USS . The USS consultation closes on 29 September 2023.

Nationally, UUK and University and College Union (UCU) as representatives of employers and employees have already indicated they would support a future benefit increase back to 2022 levels. The valuation process allows for both parties to input and feedback to USS.

The changes since the 2020 valuation are significant and we will be working with UUK, USS and our pension advisers to work through and explain them to staff.

Any changes to the scheme are subject to formal processes and statutory consultations, so it is likely USS employee members will be involved at some stage later this year, to give a view on suggested changes.

The outcome will feed into decisions by a USS on the new valuation. USS must complete the valuation process by 30 June 2024 when it must be filed and agreed with the Pension Regulator.