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Addressing the university pension fund deficit

Professor Koen Lamberts

Professor Koen Lamberts

Vice-Chancellor and President
University of York

​Following the national news coverage on the Universities Superannuation Scheme's pensions fund deficit, Professor Koen Lamberts, Vice-Chancellor of the University of York and Chair of the Employers Pensions Forum, discusses the challenges facing the scheme.​​

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. ​​

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Michael Otsuka
Michael Otsuka says:
3 August 2017 at 21:17

According to USS’s self-imposed Test 1, the pension scheme must be within reach, via 7% increase in employer contributions, of “self-sufficiency”, which “reflects the required level of assets to meet all future benefit payments to a very high probability without the need for additional contributions”.

So self-sufficiency isn’t an end in itself. Rather, it’s a means of protecting against the risk of not being able to meet pension promises. If, therefore, there is a more efficient means of protecting against such risk, it should be adopted instead.

On pp. 25–6 of the February 2017 consultation document, USS quantifies the aforementioned very high probability as close to 95% or 97.5%. Therefore the following principle underlies Test 1: employers should have a greater than 95% certainty of never having to raise their contributions by more than 7% in order to provide promised pensions.

It is likely that the principle in bold that underlies Test 1 is already satisfied by USS’s current equity-weighted return-seeking portfolio, and hence there is no case for USS’s proposed costly de-risking of the portfolio.

Please click the links below for further defence of the above:




Maryanne Dayly
Maryanne Dayly says:
24 August 2017 at 11:11

I am in my early 40s, and do appreciate that changes need to be made. However I feel very strongly that those who have already retired on extremely generous pensions should also help to fix the scheme. It is this group of people who benefit the most from the scheme (especially when taking advantage of cheaper property prices and early retirement options where I'll have to continue renting, and working until I'm 68) and contribute the least to fixing the problem. Not only this, but they also have the security of the triple-pension-lock on their state pension, which will surely be removed in the next 20-30 years when I'm allowed to retire.

Kind regards,


N Murray
N Murray says:
2 October 2017 at 00:49

If my recollection's correct, it was in 2013 or 2014 (which led to the changes in March/April 2015) that the UK Pensions Regulator castegated USS for being over exposed to Equities and under invested in Bonds. (At a time when the UK Gov rather wanted to increase investment in Bonds).

Since that pronouncement Equities generally (with the glaring exception of Oil Producers) have hugely outperformed Bonds.

If USS have felt obliged to follow the Penison Regulator's advice who should be called to account?

Tom Williamson
Tom Williamson says:
27 November 2017 at 19:54

How much do you earn? All very easy for you to say.

Professor Chris Chatwin
Professor Chris Chatwin says:
26 February 2018 at 22:59

According to economist Professor Leech of Warwick University if you decide to keep the scheme open the prudence applied is significantly reduced and in 20 years time there will be an £8.1 billion surplus.  Once you decide to close the scheme the prudence that must be applied results in a £7.1 billion deficit. So the solution is keep it open.

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