University strike action continues as USS surplus hits £5.6bn

Universities Superannuation Scheme (USS) employers have faced further calls to reverse pension changes, after the latest trustee monitoring update revealed a surplus of £5.6bn.

The monitoring update explained that there has been a “significant reduction” in the value of the scheme’s assets over the past six months, from £88.9bn at 31 March 2022 to £72.6bn, which was largely driven by prices in equity and bond markets falling.

However, the liabilities have decreased significantly on the monitoring basis since the valuation date due to rising real gilt yields, partly offset by higher inflation expectations, meaning that the scheme was showing a surplus of £5.6bn as at 30 September 2022.

In light of the funding improvements, the University and College Union (UCU) argued that employers should commit to reversing the changes, after the trustee’s latest monitoring report showed that the cost of restoring benefits is estimated as 24.4 per cent.

UK Universities have faced continued strike action over the changes to the scheme, with UCU raising concerns that the average lecturer could lose 35 per cent of their future guaranteed retirement income.

However, USS Employers previously highlighted the strike action as disappointing considering the ongoing collaboration between Universities UK (UUK), on behalf of USS Employers, and the union, arguing that the USS remains one of the most attractive private pension schemes in the country, with employer contribution rates around three times higher than the average employer contribution rate among the FTSE 250 companies.

Despite this, UCU has warned that if no commitment to restore pension benefits is forthcoming, UCU says industrial action will escalate in the New Year.

UCU general secretary Jo Grady, said: "The USS pension scheme is going from strength to strength and there remains no credible reason why benefits should not be restored. Not only is the scheme reporting a significant surplus, but the trustee’s own data shows that cuts can be revoked and benefits returned for much lower cost.

"It is a disgrace that dedicated university staff have been forced to take industrial action to win their pensions back and vice chancellors should be deeply ashamed. If there is no commitment forthcoming to restore pension benefits, there will be further disruption in the New Year - our members are going nowhere. The clock is ticking."

However, the trustee update also clarified that market conditions have remained highly volatile, emphasising that the exact position of the Scheme at the end of September cannot be established with any certainty and that the figures should be viewed with a degree of caution.

Indeed, the USS trustee has repeatedly emphasised that the monitoring updates should not be seen as an indicator of the likely outcome of an actuarial valuation, as they indicate – at best – the direction of travel, rather than the destination.

Despite this, in a letter to scheme employers, USS group chief executive, Bill Galvin, suggested that there could be room for manoeuvre and "positive choices" to consider, noting that the trend for some important indicators, such as long-term real interest rates, heading into the 2023 valuation is "more positive than for any valuation since 2011".

"These changes in the economic backdrop, in tandem with the benefit changes and covenant support measures introduced earlier this year, indicate that the scheme may well be in a more robust position, which may provide stakeholders with options," he continued.

"If the trustee’s in-depth and considered assessment under the 2023 valuation finds that the required overall contribution rate going forward provides UCU and UUK’s representatives on the Joint Negotiating Committee (JNC) with some room for manoeuvre, they will have some positive choices and trade-offs to consider.

"These are important decisions and, in responding to current conditions, we hope the JNC and the trustee can work together to ensure the scheme is positioned effectively to deal with future challenges, too."

In addition to this, Galvin reiterated the scheme's focus on establishing an accelerated timetable for the upcoming valuation, with an ambition to implement any changes decided by the JNC as a result of the 2023 valuation by 1 April 2024.

"This will be challenging, but achievable if all parties can work together constructively," he stated, confirming that the first meeting of a new Valuation Technical Forum (VTF) was held last week, with representatives from both UCU and UUK taking part.

The VTF is expected to hold a series of meetings through to March to discuss the valuation inputs, assumptions and evidence, and the application of the valuation methodology.

This will dovetail with JNC discussions in February and March on the end-of-December funding position and indicative pricing from the trustee of different options in respect of contribution rates and/or benefit structures.

"Our hope is that this will allow the JNC to reach early agreement(s) on which option(s) it would prioritise, subject to the position at 31 March 2023, as this will expedite the whole process and make achieving our collective 1 April 2024 target much more feasible," Galvin stated.

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