Revaluation of USS Pension Scheme – Staff Briefing

April 2014Richard Benson, Jo Brake-Oakes, John Garnham

Improving health worldwide www.lshtm.ac.uk

USS – overview of the scheme

• USS is one of the largest pension schemes in the UK with 300,000 members and around £40bn of assets

• Established in 1974 as the national pension scheme for HE• Mutual or “last man standing” scheme with 390 employers – HE institutions, FE colleges, learned

societies and others

• USS is an independent company governed by a board of trustees, including:• 4 members appointed by Universities UK• 3 members appointed by UCU• 3-5 independents appointed by the board

• Any proposals to change the rules of the scheme will be considered by the Joint Negotiating Committee of 11 members:• 5 appointed by Universities UK• 5 appointed by UCU• 1 independent, who acts as chair

USS – overview of the scheme

• USS is a defined benefit scheme with two sections:

Final salary sectionOpen to existing members

Employer – pays 16% of salaryIndividual – pays 7.5% of salary

Benefits

Pension = final pensionable salary x 1/80 x pensionable service

Tax-free cash = 3 x pension

Contributions

+

Career revalued benefits sectionOpen to members joining after Oct 2011

Employer – pays 16% of salaryIndividual – pays 6.35% of salary

Benefits

Pension = average pensionable salary x 1/80 x pensionable service

Tax-free cash = 3 x pension

Contributions

+

USS – revaluation

• Pensions’ legislation requires all defined benefit schemes to conduct an actuarial valuation every 3 years

• The valuation will assess the present value of the assets and liabilities of USS, including:

• Will contain a large number of assumptions of how these factors & other may change over time• Small changes in assumptions can have a big impact on the size of the deficit

• USS trustees will need to agree a Financial Management Plan with the Pensions Regulator to eliminate the deficit over a period of years

• The Regulator will be looking at:• are the assumptions reasonable?• are employers able & willing to take the steps needed to reduce the deficit?• sustainability, including a new objective “to minimise any adverse impact on the sustainable

growth of an employer”.

• average age of the active membership• expected investment returns

• contributions from employers and employees• expected increases in pensionable salaries

USS engagement paper on scheme funding, January 2014

Benefit Changes

Options?

USS Valuation timeline

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

2014 2015

Engagement Finalise the Financial Management Plan

Formalise the valuation assumptions – employer consultation Complete valuation

Preliminary Financial

Management Plan to the board

Valuation assumptions decided for consultation

Technical provision, summary funding statements, statement of investment

principles, schedule of contributions, recovery plan

30 June 2015 deadline for

valuation

Overview and key milestone