UK universities set to secure big cut in pensions bill

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The price to UK universities of offering pensions for workers is poised to fall by a whole bunch of tens of millions of kilos after the sector’s fundamental retirement plan swung into surplus after greater than a decade of being in deficit.

The Universities Superannuation Scheme, which serves about 500,000 college sector staff, mentioned on Wednesday a valuation of its funds in March had recorded a £7.4bn surplus within the plan, in contrast with a £14.1bn deficit three years earlier.

The College and Faculty Union, which represents college staff, mentioned the USS valuation was “excellent news” for the sector and will assist resolve a long-running industrial dispute over workers pay and situations.

The swing into the black for the USS, the UK’s largest private-sector outlined profit pension plan, was pushed by the sharp enhance in rates of interest over the previous 18 months as central banks sought to curb excessive inflation.

The rise in rates of interest have minimize the associated fee to outlined profit pension schemes of offering pensions, as a result of it served to scale back the worth of their liabilities.

“The indicative valuation outcomes present a serious enchancment within the [USS] funding place,” mentioned Dame Kate Barker, chair of the USS board of trustees.

“This displays some very vital financial developments for the reason that 2020 valuation.”

In line with a valuation revealed on Wednesday, the USS’s liabilities fell from £80.6bn in 2020 to £65.7bn in 2023, a drop of almost 20 per cent. Over the identical interval, the belongings elevated from £66.5bn in 2020 to £73.1bn.

The turnaround within the USS’s funds has resulted in its first surplus since 2008, and opens the door to huge contribution reductions for 331 college employers sponsoring the scheme, and tens of 1000’s of members saving into the plan.

Employers and members are at the moment contributing a mixed 31.4 per cent of wage in direction of the USS, with employers selecting up almost two-thirds of this.

Nonetheless, the contribution charge may fall to twenty.6 per cent for each employers and members underneath costings ready by the USS.

Employers are at the moment spending greater than £2bn a yr in pension prices with the USS, however this might fall by about £700mn if the contribution charge drops to twenty.6 per cent.

The decrease contribution charge may however nonetheless reverse a minimize in USS pension advantages that was made in 2022 when the plan was in deficit.

“With a beneficial monetary place, we think about {that a} discount within the contribution charge is more likely to be acceptable at this valuation and we offered steerage to stakeholders earlier within the yr to that finish,” mentioned Barker.

The USS will now seek the advice of with college employers on the trustees’ proposed funding assumptions for the 2023 valuation, with any adjustments to contribution charges and pension advantages to be applied by April subsequent yr.

Universities UK, the consultant group for the sector, mentioned the valuation meant that each USS employers and members may sit up for “considerably decrease” contribution ranges and improved pension advantages.

Vivienne Stern, the UUK chief govt, mentioned: “This can make an enormous distinction to workers on this value of dwelling disaster and to USS employers confronted with vital finances pressures.”

The UCU additionally welcomed the valuation and mentioned it meant pension cuts might be restored and contributions might be diminished.

UCU normal secretary Jo Grady mentioned: “If the employer[s] . . . can now desk a correct pay and situations provide then we will convey a lot wanted stability to our sector for the primary time in almost a decade,” she added.