USS posts ‘robust’ accounts but members lose faith over cuts

The UK’s principal pension scheme for higher education is on track to record a “more robust funding position” for the first time “in some years” but satisfaction among members has plummeted after controversial changes were introduced.

Accounts for the 2021-22 financial year – published on 25 July – show that by March 2022, the Universities Superannuation Scheme (USS) had grown its total assets to £90.8 billion, up from £82.2 billion in the previous year, with both its defined-benefit and defined-contribution funds growing.

The scheme’s estimated funding deficit based on monitoring of financial measures stood at £1.5 billion – down from £14.1 billion at the 2020 valuation – after investment returns outstripped expectations, with a 9.55 per cent return on assets coming in at 2 per cent above the benchmark.

But while 92 per cent of employers reported that they had a good or very good relationship with the USS as part of a survey carried out for the annual report, only 17 per cent of its members would agree, with 30 per cent saying the relationship was average and 42 per cent rating it as negative.

The University and College Union also criticised the £100,000 bonus given to the scheme's chief executive, Bill Galvin, which was included in the accounts, saying it was a "reward for failure."

Mr Galvin put the declining levels of satisfaction among members down to the “challenges and changes” that arose from the 2020 valuation – implemented in April 2022 – which led to higher contributions and reductions in retirement benefits.

“We completely understand these sentiments and are committed to working together with our stakeholders to deliver the best possible outcomes as we look forward to planning the scheme’s future against a less difficult backdrop than in the recent past,” he added.

The USS’ improved financial situation – confirmed by several recent reports – had led to calls to reverse the changes or introduce better benefits ahead of the 2023 valuation. However, the scheme’s trustee recently said it would be “extremely unusual” to make such a move at the current stage in the cycle, but hinted that changes could come quickly after the next valuation if finances continue to improve.

Dame Kate Barker, chair of the USS trustee board, said the year had been marked by “significant issues and difficult decisions” but the cuts to benefits “as unwelcome as they were – have put the scheme on an affordable and more stable footing”.

“For the first time in some years, recent data indicate we could be on track to achieving a more robust funding position, and our hope is that conditions improve over time, sufficient to allow more positive discussions in future,” she added.

“As we turn the page on a difficult chapter in the scheme’s history and look ahead, we continue to focus on the ways USS can evolve and maintain its position as one of the best private pension offerings in the country.”

The USS’ report also showed that its membership had continued to grow throughout the year, despite concerns that the changes had put some members off contributing. Some 25,000 new members started saving with the scheme, bringing the total to 500,584, of whom only 81,077 are currently retired.

Investment management expenses were listed as £146 million in total, up from £101 million last year, although the USS pointed out that, by managing the majority of its investments in-house, it saves money compared with other equivalent schemes. Over five years, the firm CEM Benchmarking has assessed it as being 24 per cent – or £384 million – cheaper, according to the USS.

UCU has announced it will hold another ballot on further industrial action over the pensions dispute before the autumn. Its general secretary Jo Grady said the bonus paid to Mr Galvin was a “disgraceful show of excess”.

“From leading a disastrous valuation process to overseeing unprecedented attacks on retirement incomes, Galvin’s record is one of overpaid failure. Staff have had enough, and that's why they are balloting again to win their pensions back,” she added.

tom.williams@timeshighereducation.com