Academics and universities face big rises in contributions to their pension scheme after it warned retirement costs had risen by a third.
The Universities Superannuation Scheme — which provides pensions for academics, and has more than 390,000 members — said on Friday that the cost of funding future retirement promises had increased by 35 per cent.
To maintain pension benefits, contributions from both members and 350 university employers would need to rise from the current 26 per cent of employee pay, to between 32 and 33 per cent, warned the trustees of the USS.
“The increase proposed is a significant challenge for our stakeholders . . . to address,” said the USS, which, with £60bn in assets, is the largest private sector pension scheme in the UK.
The statement comes after the scheme’s trustees undertook a triennial valuation of the financial health of the fund, which provides index-linked benefits to members, calculated on salary and length of service.
This actuarial valuation is used to determine the money from payroll contributions — by both academics and their employer universities — needed to fund the pensions provided.
The USS said that following this process, it believed the scheme’s deficit — the amount by which its liabilities exceed its assets — was “just over £5bn”. That compared with a £5.3bn deficit in 2014.
The USS added that lower-than-expected returns on the scheme’s assets would push up the costs of new pension promises.
“Although USS investments produced a 13 per cent per annum return over the last five years, the trustee expects future returns to be lower than previously predicted,” said the USS trustees.
“As expected returns on investments slow, the contribution required to fund future retirement income has to rise to offset this reduction in expected asset value growth. No one saving for retirement is immune to the changes in the investing environment.”
In a consultation document, the USS said it proposed keeping the employer contributions towards repairing the scheme’s £5bn deficit at the current 2.1 per cent of their payroll.
Stakeholders, including Universities UK, the representative body for universities to which USS is accountable, have four weeks to comment on the assumptions used to determine the scheme’s funding position.
“Universities UK is now seeking views from over 350 participating employers in the scheme to inform the [Universities] UK response to the USS trustee,” said Universities UK.
“More than ever, universities believe that achieving long-term stability of pension provision is critical and that cost and risk must be better controlled.”
Trade unions representing academics said they would oppose moves to ask members to again pay more towards their pensions, or water down their retirement benefits.
“The USS is a healthy scheme which makes more money than it pays out and is forecast to continue to do so,” said Sally Hunt, general secretary of the University and College Union.
“Having said it wants to remain the scheme of choice for universities, any move by USS to simply increase costs or reduce benefits for members, who have already seen their pensions cut twice since 2011, will risk leaving it far behind the alternative Teachers’ Pension Scheme and will be opposed with all means at our disposal by [University and College Union].”
The USS reported in its annual accounts in July that the scheme’s deficit, when measured using accounting rules, had increased by £9bn over the past year to £17.5bn at March 31, making it the largest on record at any British retirement fund.
The actuarial valuation uses different methodology to measure the deficit.