2023 valuation

By law, we have to hold a full valuation at least every three years.

It involves comparing how much money the scheme has at a particular date (its assets) with the total estimated amount of money required to pay all the Retirement Income Builder benefits promised to members up to that point in time (its liabilities).

If we don’t think the scheme will have enough money, we have to put a plan in place to address that (known as a Recovery Plan).

We also have to establish the overall contribution rate – described as a percentage of pay – that we will need in future to fund new benefits promised after the valuation date.

Because the benefits in question will be paid out over multiple decades, we make a number of assumptions about what might happen in the future. This involves comprehensive, in-depth analysis of a variety of factors – such as inflation, interest rates, the outlook for future expected investment returns, life expectancy, and the Higher Education sector – which informs judgements made by our USS Board, having taken appropriate professional advice.

We also engage with UUK on the ability and willingness of employers to take risk in the way the scheme is funded. (One example of risk is the potential consequences for participating employers of making good any shortfall if, for example, the investment returns being relied upon to pay members’ benefits do not materialise.)

We cannot plan to take more risk than employers themselves are expressly willing to support (but we can choose to take less). This is also known as risk appetite.

There are lots of legal requirements and duties when it comes to holding a valuation – including the need to take a prudent approach to assessing how much money we will need. We have to work within a robust legal and regulatory framework, overseen by the Pensions Regulator (who has the power to intervene in several ways if it considers that a valuation does not comply with the law).

The future is unknowable, so we must be able to evidence to the Pensions Regulator that USS can honour its commitments in a wide range of scenarios – that is, whether economic conditions are fair or foul.

This means we have to allow for a range of possible outcomes – such as higher-than-expected inflation, investment returns not keeping pace with inflation, or investment returns falling short of expectations – rather than just our best estimates.

All of these considerations will be reflected in our proposed funding assumptions (known as the Technical Provisions), which will be subject to a statutory consultation with Universities UK (UUK) – as set out in our anticipated timetable.

We are also required to consult UUK on behalf of all employers participating in USS on the Statement of Funding Principles, the Schedule of Contributions and (if we don’t think we’ll have enough money) a Recovery Plan.

UUK, in turn, consults participating employers.

We will consider UUK’s feedback before concluding our view of the funding position and required contribution rate.

The Joint Negotiating Committee will then have chance to consider if it wants to make any changes to benefits and/or how any change to the overall contribution rate is split between members and employers.

USS members (and people eligible to be a member) will be consulted by their employers, if any proposed changes are listed changes set out in legislation (including, but not limited to, increasing member contributions, changing the basis for future benefit accrual, or changing the rate at which payments are increased or benefits revalued).

We may also have to consult UUK again on the Statement of Funding Principles, the Schedule of Contributions and a Recovery Plan (if we don’t think we’ll have enough money) before the valuation can be finalised and filed with the Pensions Regulator.

The latest valuation will be based on a snapshot of the scheme on 31 March 2023 – but the process itself will run into 2024, as set out in our anticipated timetable.

The legislative deadline for completing it is 30 June 2024 (15 months from 31 March 2023).

• University Superannuation Scheme Limited

  We are the corporate trustee of the pension scheme. We run and manage USS in line with the Scheme Rules (which set out what benefits and contributions are payable, and how the scheme is to be administered) as well as all relevant law and regulations.

  One of our primary legal duties as trustee is to protect the existing Retirement Income Builder benefits promised to USS members and ensure they can be paid now and in the future.

  The trustee has sole responsibility – under the Scheme Rules and legislation – for identifying the funding position and determining the overall contribution rate required (described as a percentage of pay) to fund the benefits currently being promised to members.

  Our USS Board considers comprehensive analysis and advice from advisors in making judgements on a variety of forward-looking assumptions on things like inflation, interest rates, the outlook for future expected investment returns, life expectancy, and the Higher Education sector.

  We formally consult Universities UK (UUK), on behalf of all employers participating in USS, as specified in the Scheme Rules, but also engage with the Joint Negotiating Committee (JNC), University and College Union (UCU), employers, and members.

  For example, between November 2022 and March 2023, members of the USS Board will be discussing the key funding assumptions with UCU and UUK’s JNC representatives (and their advisors) through a Valuation Technical Forum.

  As one of the largest private defined benefit pension schemes in the UK, we are also subject to one-to-one supervision from, and regular engagement with, the Pensions Regulator (who has the power to intervene in several ways if it considers that a valuation does not comply with the law).

  Once we have established the funding position and required overall contribution rate, the JNC will be able to consider if it wants to make any changes to benefits and/or how any change to the overall contribution rate is split between members and employers.

• The Joint Negotiating Committee (JNC)

  The Joint Negotiating Committee is made up of an equal number of UUK and UCU representatives and an independent Chair.

  The Chair of the JNC is an appointee of the committee itself. As an independent member, they have a fiduciary duty to the scheme, and to all its beneficiaries, and have a casting vote in JNC proceedings.

  The JNC can recommend rule changes at any time and its consent is required for any rule change proposed by the trustee. It has sole responsibility for deciding how any change in the overall contribution rate required by the trustee should be addressed (i.e., through changes to benefits and/or how the change to the overall contribution rate is split between members and employers).

  USS members (and people eligible to be a member) will be consulted by their employers, if any proposed changes are listed changes set out in legislation (including, but not limited to, increasing member contributions, changing the basis for future benefit accrual, or changing the rate at which payments are increased or benefits revalued).

• Universities UK (UUK)

  UUK is a representative organisation for the UK’s universities, supporting the work of universities and promoting their interests.

  UUK represents the scheme’s participating employers on the Joint Negotiating Committee and makes appointments to the USS Board and to the Advisory Committee.

  The Scheme Rules nominate UUK to act as representative of all participating employers for valuation purposes. It is UUK who the trustee must consult with in relation to scheme funding.

  So, in a valuation, UUK is formally consulted on the methods and assumptions (demographic and economic, including risk appetite – see below) we will use to establish the funding position and contribution rate.

  The trustee is also required to consult UUK on behalf of all employers participating in USS on the Statement of Funding Principles, the Schedule of Contributions and (if we don’t think we’ll have enough money) a Recovery Plan.

  Between November 2022 and March 2023, members of the USS Board will be discussing the key funding assumptions with UUK and UCU representatives (and their advisors) through a Valuation Technical Forum.

  We also engage with UUK on the ability and willingness of employers to take risk in the way the scheme is funded. (One example of risk is the potential consequences of making good any shortfall if, for example, the investment returns being relied upon to pay members’ benefits do not materialise.)

  We cannot plan to take more risk than employers themselves are expressly willing to support (but we can choose to take less). This is referred to as risk appetite.

• University and College Union (UCU)

  UCU is a trade union and professional association for academics, lecturers, trainers, researchers, and academic-related staff working in further and Higher Education throughout the UK.

  UCU represents the scheme’s members on the Joint Negotiating Committee and makes appointments to the USS Board and to the Advisory Committee.

  As trustee, we engage with UCU with the aim of ensuring a good understanding of the key issues that determine our decisions.

  For example, between November 2022 and March 2023, members of the USS Board will be discussing the key funding assumptions with UCU and UUK representatives (and their advisors) through a Valuation Technical Forum.

• The Pensions Regulator

  The Pensions Regulator is the UK regulator of workplace pension schemes.

  It has the power to intervene in several ways if it considers that a valuation does not comply with the law.