USS: 50 years young – reflections on the scheme’s golden jubilee year

David Watts is a UCU-appointed non-executive director of Universities Superannuation Scheme. He joined the USS Board in March 2021 and its Pensions Committee in July 2021. In December 2024 David joined the Remuneration Committee, having previously served on the Governance and Nominations Committee.

David is a social scientist and historian at the University of Aberdeen. Before joining the USS Board, he was Aberdeen UCU’s pensions representatives for about 10 years. David was the first academic trade union appointed member of the University Court (2017-20), following the passing of the Higher Education Governance (Scotland) Act 2016.

I am privileged to serve my fellow Universities Superannuation Scheme (USS) members as a University and College Union (UCU)-appointed non-executive director of the trustee. To help mark its golden jubilee, I was asked to provide my perspective on the scheme. This presented a dilemma. Benefit design is central to my understanding of USS. However, benefit design is primarily the responsibility of the Joint Negotiating Committee, not the trustee. Thus, what follows is written in my capacity as a director.

From the standpoint of this jubilee year I have three main reasons to be cheerful. First, USS remains predominantly a defined benefit pension scheme. Outside the public sector, defined benefit pension schemes that are open to new members have become rare. Secondly, all USS members are building up a guaranteed pension on the same basis in the Retirement Income Builder. This makes a significant contribution to inter-generational fairness in occupational pension provision in the Higher Education sector. Thirdly, the benefits built up by members are supported by employer contributions that are significantly higher than the minimum level required by workplace pension regulations. This contrasts with many defined contribution occupational pension schemes, to which employer contributions are often low and from which many members are unlikely to secure an adequate retirement income. The retention of these three characteristics of USS was made possible by the cooperation of the UCU (on behalf of scheme members), Universities UK (on behalf of scheme employers) and the trustee. However, the Retirement Income Builder was at risk of closure in the latter half of the last decade, prompting UCU members to take industrial action to defend it.

The first fifty years of the Retirement Income Builder have seen sustained and vigorous growth. Membership grew almost eight-fold between 1980 and 2023. Inflation-adjusted asset values increased seven-fold between 1984 and 2023. In December 2024 there was a technical provisions surplus of £9.7bn and a self-sufficiency surplus of £3.7bn. Importantly, the Retirement Income Builder remains immature: the number of members paying in is more than double the number receiving pensions from it. Its income (from member contributions and investment returns) exceeds its outgoings (pensions and administrative costs), and this is likely to continue for the foreseeable future.

One consequence of the growth of USS has been an increased focus on scheme governance. One of its architects wrote that the creation of USS was a “joint exercise between the AUT [Association of University Teachers] and the CVCP [Committee of Vice-Chancellors and Principals]”¹. Both sets of stakeholders, represented today by the UCU and the Universities and Colleges Employers Association (UCEA) respectively, remain closely involved in scheme governance. Each appoints members to: the Joint Negotiating Committee, which has the primary responsibility for benefit design and must consent to any changes to the Scheme Rules; the Advisory Committee, which can advise the trustee on the exercise of discretionary powers under the Rules and has authority to determine member complaints; and the USS Board.

However, members of the USS Board have fiduciary and other duties that require them to operate independently of the stakeholders. The trustee must ensure that the pensions promised by employers to USS members are paid. As the scheme has grown, its assets and the overall value of the pensions promised to members have increased relative to the size of the Higher Education sector. Growth in member numbers, changes in Scheme Rules over time, and an increasingly prescriptive regulatory environment have greatly increased the scheme’s operational complexity. The trustee and its wholly-owned investment subsidiary are fortunate to have a skilled and dedicated workforce to run USS. However, within the Scheme Rules and legislation the roles and responsibilities of the different parties are distinct and this can lead to differences in perspective, and at times tensions, particularly in relation to valuation matters and the funding position of the scheme.

As USS enters its second half-century, the decision of the stakeholders’ representatives, the UCEA and UCU, to review its governance is timely.

There is much to reflect on. Take, for example, the rapid recovery of the Retirement Income Builder’s funding position in recent years. Between the 2020 and 2023 valuations, which were conducted in the same way, the technical provisions improved by £23.2bn and self-sufficiency by £36.5bn. As the scheme’s assets increased by £6.6bn over the same period, and as the life expectancy of its membership changed little, it is clear that this rapid improvement in the funding position was driven primarily by external developments. Thus, relatively short-term changes in financial markets exert a profound influence on the finances of a pension scheme that remains open to new members and has a time horizon extending decades into the future.

There is no single correct way of running a pension scheme, just as there is no single correct way of calculating the likely future cost of providing the pensions that USS members have built and continue to build up in the Retirement Income Builder². Thus, it is right that the governance review is owned by the stakeholders, as USS is their pension scheme.

But any such review will be constrained by the regulatory and administrative requirements applicable to the scheme. The trustee has much expertise to offer here. If the governance review is done in a spirit of cooperation, and is not rushed (about 16 years elapsed between the setting up of the Hale Committee in 1958, which recommended a terminal salary defined benefit pension scheme for university staff, and the incorporation of USS in 1974), there is every reason to be confident that USS will remain an immature, predominantly defined benefit pension scheme as it approaches it centenary.

¹D Logan, The Birth of a Pension Scheme. A history of the Universities Superannuation Scheme (Liverpool University Press, 1985), p. 91

²Those interested in reading more on this topic might find the following useful: C Turnbull, A History of British Actuarial Thought (Palgrave Macmillan, 2017), esp. chapter 6; CJ Exley, SJB Mehta and AD Smith, 'The financial theory of defined benefit pension schemes', British Actuarial Journal (1997), 3(4), pp. 835–966; M Otsuka, How to Pool Risks Across Generations: The Case for Collective Pensions (Oxford University Press, 2023), esp. chapter 2.

Will Spinks has been involved in USS for around 12 years, initially as an employer nominated member of the Joint Negotiating Committee (JNC) and, since 2018, as an employer nominated non-executive director of the USS Board. Will is a pensioner member of the scheme having worked as the Chief Operating Officer of Loughborough University and as the Registrar, Secretary and Chief Operating Officer of the University of Manchester. Will chairs USS’ Remuneration Committee and is a member of the Pensions Committee and Advisory Committee.

Prior to joining the Higher Education sector, Will worked for ICI, Zeneca and AstraZeneca in the UK and the USA. He was also an employer nominated non-executive director of the AstraZeneca pension fund.

Through 2024 and 2025, a range of 50th anniversary dates are of note for Universities Superannuation Scheme Limited (USS), from its incorporation in April 1974 through to the first members being accepted into the scheme in April 1975. As an employer appointed non-executive director of the trustee company, I was asked to present my perspective of the scheme to help mark its golden jubilee.

In the 50 years since it was formed, USS has grown to be the UK’s largest private defined benefit (DB) scheme in the UK by way of assets - with assets under management at around £75bn - and now has around 550,000 members.

USS has, of course, grown and developed alongside the Higher Education (HE) sector that it was set up to serve. It is quite remarkable, however, that it has persevered, adapted and survived as a (largely) DB scheme when, all around it, similar such schemes have first been closed to new members and then closed to future accrual by existing members. According to the Pensions Regulator, only 4% of UK private DB schemes remain open to new members and USS accounts for half of the people still actively paying in to an open DB pension scheme in the UK.

The scheme’s success has only have been achieved by the commitment over time of its stakeholders, employers and members, now represented by the Universities & Colleges Employers’ Association (UCEA) and the University and College Union (UCU) respectively.

Anyone seeking the precise detail of the establishment of the scheme can dive into Sir Douglas Logan’s book. A much shorter and more accessible version of the history can be found, however, within a section of the Higher Education Policy Institute’s Report 115 written by Nick Hillman.

For a blog-friendly summary, when USS was formed, three key objectives influenced stakeholders in the design of the scheme:

• Stakeholders wanted a scheme that resulted in an acceptable income in retirement that was protected in some way against inflation.

• Stakeholders wanted a scheme that allowed staff working in HE the opportunity to move between institutions without any financial penalty arising from having to leave one pension scheme and join another.

• Stakeholders wanted a pension scheme that helped to attract and retain high quality staff.

They wanted a scheme that was “among the most generous of its kind in the country”.

So, on our 50th anniversary, how are we doing?

• Current scheme design results in members building up, every year, a block of pension based on 1/75 of your salary (up to the salary threshold). Importantly, members also get a one-off cash lump sum (tax-free up to a certain limit) of three times annual pension amount to take at retirement. The pension that is built up will also go up in line with USS standard pension increases. The degree of protection against inflation differs between pre-October 2011 and post- October 2011 service but currently is capped at 10% (the first 5% matches the increase in official pensions, with half of the excess above 5% matched to a maximum of 10%). USS’s founders would, I believe, be pleased to see this level of benefit particularly when compared to what the majority of UK employee receive.

• The number of HE and HE-related employers participating in the scheme has grown significantly over the years and now stands at around 330 employers. This means that, once in the scheme, the possibility of members being able to remain in it when moving to another employer within the HE sector, is significantly increased. This was one of the key design features that the scheme’s founders sought to deliver and it has grown in scope as the number of participating employers has grown. This offers significant value to members.

• There is strong support from employers for USS and the importance of a sector-owned and led scheme. Employers are proud of their ability to provide a significant pension scheme as part of their total reward offer. A key priority for employers is maximising the value of total reward within HE and UCEA has prioritized supporting employer aspirations to enhance the overall employer experience. The commitment of employers to USS is a significant element of this.

What challenges does the scheme need to prioritise?

USS will always face numerous challenges but there are, I believe, there are two that are key for the scheme to respond to in order to continue to meet the founders’ original objectives: volatility and participation.

• A key challenge for any open DB pension scheme in the UK is stability over time. Significant movements in macroeconomic factors combined with the regulatory regime within which UK pension funds are required to operate mean that there is significant potential for volatility between the, at least, three yearly valuation processes that private DB pension schemes, such as USS, are required to go through. This is a key reason why only 4% of UK private DB schemes remain open to new members. USS has not been immune to this volatility and this has led to conflict within the sector. Both UCU and UCEA (and UUK before them) are committed to continuing to work together to ensure the stability of benefits and contributions at future valuations and this work is being progressed through the Stability Working Group. The trustee is actively supporting stakeholders in this process.

• All employers must provide a workplace pension scheme. Your employer must automatically enrol staff into a pension scheme and make contributions to your pension if you are classed as a worker and you are aged between twenty-two and State Pension age and you earn at least £10,000 per year and you usually work in the UK. Automatic enrolment began with a phased introduction in 2012. Many USS employers use the USS scheme to fulfil this obligation for academic and related staff. Some use it for all their staff. Staff have the right to opt out this process and, because of financial pressures or believing the scheme is not for them, some choose to do so, despite the benefits available. This means that they don’t receive the benefit of their employer’s contributions (currently 14.5%) may miss out on the tax relief on their employee contributions (currently 6.1%), won’t therefore build up their USS pension in retirement and won’t receive the life cover of three times salary that membership of USS additionally provides. The level of opt outs is, therefore, an issue for the fund. This has been as high as about 15% in recent years but now appears to have fallen back to a more typical level of around 10%. Whilst the fall is to be welcomed and ongoing opt out rate of around 10% still feels too high and would be a disappointment to the founders who lived in a world where opting out of the scheme was not a possibility. The trustee is keen to support the stakeholders in understanding why people are opting out and in finding ways to ensure all eligible staff make informed decisions and are supported in saving for their retirement.

So, at its 50th anniversary, whilst USS would probably be unrecognisable to its founders in its size and complexity, it would, I hope, be very much in keeping with their original vision.