University pension scheme records £17.5bn deficit

31 Jul 17

The university pension scheme deficit jumped by £9bn last year, rising to £17.5bn – the largest on record at any British retirement fund.

According to its annual report and accounts, the Universities Superannuation Scheme (USS) had assets of £60bn but retirement liabilities of £77.5bn on March 31.

The annual report stated: “During the current financial year (to 31 March 2017), the assets of the scheme increased from £49.8bn to £60.0bn, however the liabilities increased from £59.8bn to £72.6bn, leading to an increase in the scheme’s deficit.”

This equates to an increase in assets of 20.48% but an increase in liabilities of 21.4%.

The accounts state that the deficit was driven by “lower expected levels of future investment returns and lower yields on index-linked gilts”.

Bill Galvin, chief executive of USS, said it was too soon to speculate how the deficit would be closed.

“How the deficit recovery plan emerges from the [current] valuation is some way off,” he told the Financial Times.

“All we’re in a position to say now is that it is likely that investment returns will be lower than they were assumed to be in 2014 and that will put up the cost of future contributions.”

Others have speculated that future pension payouts may have to be reduced or staff and employer contributions increase.

Independent pension specialist John Ralfe told the BBC: “It seems inconceivable to me that student fees will not have to be diverted into plugging the pension deficit.

“That means either they go up or there is a smaller amount of money that can be dedicated to teaching and research. And obviously the student fees that are paid are for teaching and research, not to pay for the folly of USS betting on equities over the last few years.”

A spokesperson for the Universities UK, the representative body for universities to which USS is accountable, said: "Valuation work is underway including the assessment of the sponsoring employers covenant and the actuarial assumptions which the USS Trustee is proposing for the 2017 valuation.

"The next step is a formal consultation on the trustee’s proposed valuation assumptions, which take place with UUK in September."

The purpose of the valuation is to ensure there is a scheme that is safe, sustainable, suitable and attractive for all, the spokesperson added. 

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