Pensions

USS posts 20.1% growth in AUM during 2016/17

Galvin: This has been a year of important milestones for USS

The Universities Superannuation Scheme (USS) increased assets under management by 20.1% to £60bn over the past year, the scheme’s latest annual report and accounts reveal.

The fund’s latest annual report and accounts said the scheme’s assets grew by £10.2bn from £49.8bn on 31 March 2016 to £60bn on 31 March 2017.

The scheme said it underperformed its one-year strategic reference portfolio benchmark for the 2016/17 financial year by 2.05 percentage points due to underweight positions in index-linked gilts and US equities.

But it said it outperformed its strategic, rolling five-year benchmark by 0.5 percentage points per annum – contributing £1.1bn of added value to the fund over that time, net of costs.

The scheme also said its strategy of bringing more investment in-house continued to yield results – noting that 73% of its assets are now managed internally by USS Investment Management, USS’s wholly-owned investment management subsidiary, compared to 69% in 2016.

It said investment costs are now 32 basis points (bps) – 7bps lower than the 2015/16 financial year and 15bps lower than 2013/14 year.

USS chief investment officer Roger Gray said: “Our performance over the long-term has continued to be strong, and we are confident that the breadth and diversity of assets and capabilities deployed for the scheme will continue to pay off over longer periods.

“The strategy of bringing more investment management in-house, where cost effective, has also continued to produce value for money for members and has helped us to contribute more than £1bn in added value to the scheme, relative to the five-year rolling benchmark.

He added: “The investment outlook is being dampened as low government bond yields have, to varying degrees across asset classes, fed in high market valuations. This ‘reduced returns’ outlook is an important consideration for pension schemes, like USS, that offer defined benefits.”

During the year, USS said it had also delivered the most challenging change programme the scheme has ever experienced in its 41-year history, successfully and within a very tight timescale:

  • In April 2016, the USS Retirement Income Builder was launched: a career average defined benefit (DB) pension for all active members.
  • Six months later, a £55,000 salary threshold was introduced to the USS Retirement Income Builder and a new defined contribution (DC) offer – the USS Investment Builder – was launched.
  • The DC scheme was automatically applied to any member contributions above the new DB threshold but was also open to all members as an optional extra, giving greater choice and flexibility.
  • A new online portal was created and a dedicated service engagement team was established – both offering distinct ways of supporting members and employers through the scheme’s changes and beyond.

USS said delivering these transformations involved building greater capabilities and moving to an entirely new IT platform – one capable of supporting the new hybrid model and of progressively improving the administrative arrangements for employers and members alike.

USS group chief executive officer Bill Galvin explained: “This has been a year of important milestones for USS.

“The move to a hybrid model – offering more options and greater flexibility for how members can plan for their retirement – has involved the transformation of our administrative and IT platforms and the development of new products and support services.”

He added: “Our ambition is to be the sector’s pension scheme of choice – to maximise the benefits of scale, mutuality and specialisation in our investment solutions and administrative services, so that our members have the best possible arrangements for their retirement.”

USS trustee board chairman Professor Sir David Eastwood added: “USS has been through a period of unprecedented change. This has been as challenging for our sponsoring employers and members as for the trustee company, and the transformation that has been achieved is a testimony to the professionalism and commitment of everyone involved.

“We have met many challenges this year, and I have no doubt there will be more to come, but we can look to the future with confidence in the capability within USS to serve the sector it was created by, and for.”

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