UK’s Largest Pension Fund Loses 1.7% in Fiscal 2020 But Beats Benchmark

Universities Superannuation Scheme (USS), the UK’s largest pension fund, reported that its investment portfolio lost 1.7% for fiscal year 2020 ending March 31, but beat its benchmark portfolio, which lost 5.4% for the year.

The £67.6 billion ($88.5 billion) fund, which is down from £68.4 billion last year, also reported an investment return of 6.19% a year over the past five years, which topped its benchmark by 0.91% annually.

Of the £67.6 billion in total assets under management, the defined benefit (DB) fund accounted for £66.5 billion, while its defined contribution (DC) assets totaled £1.1 billion. The pension also said its funding deficit ballooned to £12.9 billion from £5.7 billion at the same time last year due to persistently low interest rates.

“The depth of the economic shock brought about by the pandemic has highlighted the long-term challenges facing open DB pension schemes like USS,” Bill Galvin, USS’ Group CEO, said in statement. “Challenges that we intend to work with our stakeholders—Universities UK and University and College Union—to address through the ongoing 2020 valuation.”

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Galvin added that “even before COVID-19, historically low interest rates, increased life expectancy, greater regulation, and volatile financial markets had already made promises of a set retirement income for life more expensive.”

The pension’s funding ratio fell to 84% from 93% in 2019 and 95% in 2018, reflecting reductions in interest rates over the year and “the devastating impact of coronavirus on global markets in the final quarter,” USS said in its annual report.

The asset allocation for the fund, as of the end of March, is 38.39% in listed equities, 26.85% in index-linked bonds, 21.92% in other private markets, 11.03% in other fixed income; 6.5% in nominal government bonds, 5.52% in property, 1.95% in absolute return, and 1.09% in commodities, and subtract 13.25% for cash and overlays. USS said that by managing most of its investments in-house, the pension saves approximately £49 million a year compared to its peers.

USS also announced the appointment of Dame Katharine (Kate) Barker as a new chair of the trustee board. Barker, who joined the board in April as chair-elect and will become chair in September, replaces Sir David Eastwood, who has been on the trustee board since September 2009 and chair since 2015, and will retire from the board in August.