The Pensions Regulator (TPR) has said Universities UK’s (UUK) proposal for a maintained contribution rate of 30.7 per cent for the Universities Superannuation Scheme (USS) is “not acceptable”.

The regulator also stated that the proposed covenant support measures were not likely to be compliant with Part Three of the Pensions Act 2004, which details regulations for scheme funding, although it did welcome some of the proposed measures.

UUK launched a seven-week consultation on the proposed changes on 7 April, highlighting changes to scheme rules to preserve a defined benefit element of the scheme and an alternative path to the 2020 USS valuation, which it argued could help bring headline costs down.

The regulator’s letter stated: “Although we welcome the covenant support measures and believe that they do have value, there is nothing about these measures that materially improves the covenant.

“In that sense, our view remains that the covenant is still at (the upper end of) ‘Tending to Strong’ – in either the UUK proposal, or our understanding of the counter-proposal which has been put forward by the trustee.”

As such, the regulator explained that its concerns laid with UUK’s proposed valuation assumptions and recovery plan structure, which leads to an assessed cost of 31.2 per cent of salaries.

The regulator said: “If the covenant support measures were enhanced in line with the trustee’s counterproposal, we consider the appropriate overall contribution rate should be at least 1 per cent to 2 per cent of salaries higher than your assessed cost of 31.2 per cent.”

However, while it said it would not be comfortable with these total contributions, TPR acknowledged that it would likely see this as a “marginal situation” and would not seek to instigate further action.

With reference to USS strategy, the regulator also said it was not convinced that the scheme’s recovery plan should be extended from 15 to 18 years and the level of investment outperformance maintained at 0.5 per cent a year over that longer period.

Referencing its consideration and assessment of the scheme’s triennial valuation from 31 March 2020, TPR said it was bearing in mind that the scheme’s technical provisions and self-sufficiency deficits were both likely to be smaller 12 months later.

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