PensionsAugust 7, 2023

Improved Funding Spurs UK Pension Giant USS to Propose Lower Contribution Rates

The proposed reduction would cut the combined employer and employee contribution rate to 16.2% from 31.4%.

Reported by Michael Katz

The 75-billion-pound ($95.8 billion) Universities Superannuation Scheme, the U.K.’s largest pension fund, announced that, thanks to a significant improvement in its funding position over the past three years, its participants and employers will see a significant cut to their contribution rates.

According to the actuarial valuations, the USS swung from a deficit of 14.1 billion pounds ($18 billion) in 2020 to a surplus of 7.4 billion pounds in 2023. Between its 2020 valuation and the one conducted earlier this year, the pension fund’s assets increased in value to 73.1 billion pounds from 66.5 billion pounds in 2020, while its liabilities decreased to 65.7 billion pounds from 80.6 billion pounds.

“Having wrestled with deficits and rising contribution rates for more than 12 years, [trade union University and College Union] and [advocacy group Universities UK] now find themselves in the very welcome territory of considering how to respond to very different circumstances,” Kate Barker, chair of the USS board, said in a release.

Based on the new valuation, the USS board has proposed reducing the combined employer and employee contribution rate to 16.2% from 31.4%. Of that 31.4%, USS members currently pay 9.8% of their salary, while employers contribute 21.6%. This includes 6.2% in deficit recovery contributions on top of a 25.2% future service rate. The decrease to the contribution rate would be split 35%:65% between members and employers, respectively.

As a result of the new valuation, the USS launched a consultation with advocacy group Universities UK on the trustee’s proposed reductions. UUK will then consult with the pension fund’s 331 participating employers and provide a response near the end of September.

“The emergence of a provisional surplus could provide a platform for greater stability in terms of the scheme’s funding position, contribution rates and benefit structure,” Barker said. “We look forward to supporting UCU and UUK’s discussions on this.”

Trade union UCU issued a statement that the reduction of contributions is “a positive turn that exceeds even the most recent predictions in May,” adding it could mean member contributions will be lowered to 8% or less, perhaps even as little as 6.1%.

“This is yet another step towards the restoration of our members’ pensions,” UCU general secretary Jo Grady said in a statement. “I have lost count of the times we were told it would never happen.”