A second report examining the potential role of conditional indexation (CI) within the Universities Superannuation Scheme (USS) has provided further analysis of how the model could work in practice, while emphasising that no decision has yet been taken on potential changes to the scheme’s benefit design.

The report formed part of joint work between the Universities and Colleges Employers Association (UCEA) and the University and College Union (UCU), supported by the USS trustee, to explore ways to improve long-term stability in the scheme following several years of volatility in contribution rates and retirement income builder (RIB) benefits.

CI is being considered as one possible mechanism to help manage that volatility.

Under a CI structure, core defined benefit (DB) accruals would remain in place, but future inflationary increases would be linked to the scheme’s funding position rather than being guaranteed.

Any such change would apply only to benefits accrued after introduction, with past benefits and their indexation remaining protected.

The first report, published in June 2025, provided an initial overview of how CI operates in other jurisdictions, particularly in parts of Canada, and set out high-level modelling comparing CI outcomes with the current RIB structure.

It suggested that, in many scenarios, CI could deliver higher expected benefits or more stable contribution rates, but highlighted significant trade-offs around risk, governance and communication that would require further work.

Building on that, the second report intended to support engagement with employers and members on whether CI should be explored further, rather than to recommend a particular design.

Indeed, it explicitly stated that it did not seek to define an optimal CI model or governance framework, but instead aimed to surface the key choices and compromises that would be required if CI was pursued.

Among its findings, the report suggested that CI could provide additional flexibility in managing scheme funding, potentially smoothing contribution changes between valuations and reducing the likelihood of sharp benefit or cost adjustments during periods of financial stress.

Modelling indicated that, under certain assumptions, CI could deliver higher expected benefits than the current structure, albeit with greater uncertainty around the level and timing of indexation.

However, the report also highlighted that outcomes would be particularly sensitive in the early years after any introduction of CI, when legacy non-CI benefits would still dominate the scheme’s funding position.

As a result, the risk of indexation being reduced below target levels would be higher in the initial phase, underscoring the importance of safeguards and clear decision-making frameworks.

Meanwhile, a significant portion of the report focused on governance and process, outlining how decisions on indexation could be structured, who would be responsible for them, and how transparency and trust could be maintained.

It stressed that any CI framework would need to be clear, legally robust and capable of being communicated effectively to members and employers.

The report also set out an assessment criteria to help the UCU and UCEA judge whether CI represented a viable and balanced alternative to the current RIB design.

These included the impact on contribution and benefit stability, the distribution of risk between different groups of members and employers, and the extent to which CI could support the long-term sustainability of a predominantly DB scheme.

Crucially, the report concluded that further engagement and analysis were required before any decision was taken on whether to move to a detailed design phase.

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