The Universities Superannuation Scheme (USS) has launched a consultation on funding assumptions and methodology for its 2023 actuarial valuation, proposing a future contribution rate of 16.2%, compared to the 25.2% set in 2020.
This was prompted by a “significant improvement” in the scheme’s funding position, as it’s report in February showed a £5.0bn (€5.7bn) surplus.
The consultation, launched together with Universities UK (UUK) will consult its 331 participating employers, on a proposal to use “broadly the same” methodology as that used for the 2020 valuation.
It added that indicative results largely reflect a significant change in the economy since the 2020 valuation was finalised in the latter half of 2021.
In addition, UUK and University and College Union, both of which have equal representation on the scheme’s Joint Negotiating Committee (JNC), have asked the trustee to price benefits at pre-April 2022 levels, for service from 1 April 2024.
Based on trustee’s funding assumptions for the 2023 valuation, this would require a future service contribution rate of 20.6% of salaries, USS noted.
Members currently pay 9.8% of their salary, while employers contribute 21.6% – giving overall a contribution rate of 31.4%. This includes 6.2% in deficit recovery contributions on top of the 25.2% future service rate.
Under the trustee’s proposals for the 2023 valuation, there would be a potential surplus of £7.4bn on the technical provision basis, compared to the £14.1bn deficit in 2020, USS added.
Trustees will confirm the overall contribution rate to JNC once the responses to the consultation are considered.
JNC will then make a decision in respect of any changes it chooses to make to benefits, and how the change to the required contribution rate will be split between members and employers.
However, USS said that in anticipation of JNC deciding to make improvements to benefits, preparations are already being made for a statutory employer contribution with affected employers.
This is scheduled to run from late September to late November 2023.
Trustees will then need a final decision from JNC in December if any benefit changes are to be introduced from 1 April 2024.
Kate Barker, chair of the USS board, said: “Having wrestled with deficits and rising contribution rates for more than 12 years, UCU and UUK now find themselves in the very welcome territory of considering how to respond to very different circumstances.
“Mindful of the pace of change we’ve seen in financial conditions – it is important we do what we can to ensure the scheme is more resilient than in the past should some of the challenges experienced over the past decade emerge again in future.”
Most private schemes in the UK are now closed, with USS being one of the relatively few still open to accrual and new members. Barker added that USS “very much wants that to continue”.
She added: “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 – and we look forward to supporting UCU and UUK’s discussions on this.”
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