Many defined benefit pension schemes are affected by a particularly challenging economic environment, and the Universities Superannuation Scheme (USS) is no exception.
The latest monitoring deficit recorded in the USS annual report is £12.6bn, up from £10bn in 2016. To protect the interests of current and future USS members, universities must address this deficit.
Pension costs and risks need to be controlled, so that promises made today do not preclude universities from offering good pensions to employees in the future. With a deficit this large, doing nothing is not an option.
USS is one of the UK's largest pension schemes. It provides retirement benefits to over 66,000 retired members and has over 190,000 contributing members, who work across the higher education sector. The needs of those members and the interests of the 350 universities and higher education bodies sponsoring the scheme will need to be carefully considered in developing a solution for the funding shortfall of the scheme. Universities understand how important pensions are for their staff, and take their responsibilities for supporting their staff in saving for their retirement very seriously.
Over the coming months, USS will work with employers (through Universities UK) and employees (through the University and Colleges Union) to understand the options that are available for dealing with both the deficit and the wider increase in pension costs anticipated at the 2017 valuation.
The discussion will be guided and supported by the universities' Employers Pensions Forum (EPF). Today, the EPF publishes a report that considers the long-term challenges facing pensions in the higher education sector. It puts forward a set of guiding principles, describing universities' priorities for the future.
The report highlights the universities' wish to continue the provision of valued pensions for their staff, but also their desire for a provision with controllable and predictable structure and costs, and with the flexibility to adapt to any future change in demands and behaviours.
Shortfalls in USS funding has already led to scheme reforms in recent years, including higher employer and member contributions and benefit changes.
Scheme reforms driven by funding pressures are challenging, and there has already been some public speculation about how universities might deal with the issue – from the inconceivable prospect of raising tuition fees to address the deficit, to increased pension contributions from employers and scheme members, to further benefit reforms. With everyone involved, we must make some tough decisions if we are to find a long-term solution to the challenges facing our pension scheme.