Universities Superannuation Scheme Information

The Universities Superannuation Scheme is a pension scheme in the United Kingdom with over £50 billion under management. Its members include academic and academic-related staff (including senior administrative staff) in many United Kingdom universities, mainly those that were universities prior to 1992 (staff in the post-1992 universities are mostly members of the Teachers Pension Scheme). In 2006, it was the second largest private pension scheme in the UK by fund size. The headquarters of Universities Superannuation Scheme Limited (USS) are in Liverpool.

In 1911 the President of the Board of Education established an Advisory Committee on University Grants. This research formed the basis of the predecessor of USS, the Federated Superannuation System for Universities, which was approved by the Board of Education and membership became compulsory for new appointees post 1 October 1913. The basic plan criteria were:

However, perceived drawbacks of the scheme were that it did not link to final pay, access was contingent on a medical examination, there was no guarantee for dependents, little provision for risk benefits, and no indexation of benefits. Hence it compared unfavourably to the defined benefit scheme already enjoyed by school teachers under the School Teachers (Superannuation) Act 1918. From 1958 to 1969 several committees were established to review the present arrangements. The recommendations for a defined benefit scheme were initially rejected by universities in 1960 and again by a committee in 1964, who concluded it was “unable to make a clear recommendation in favour of either system”.

In 1969, a Joint Consultative Committee (JCC) for the reform of FSSU was established, and commissioned a report from G. Heywood (the FSSU Consulting Actuary) that included a proposed outline for USS. It was to be a one-eightieth scheme with a three times annuity lump sum, available to new entrants only. No medical examination was required and pensions would not be increased.

A meeting to discuss the structure of USS took place in Liverpool on the 28 December 1970. The proposal for an independent company was approved by the JCC in November 1971, and endorsed by the CVCP in December 1971. The FSSU Executive Committee was “unenthusiastic”. Drafting of the rules began in 1971, with the seventh draft being agreed in August 1973 and circulated to universities along with an explanatory booklet. The scheme was finally introduced on 1 April 1975. The scheme was a balance of cost scheme in which the sponsors bear the risk of default, and specifically a last-man-standing multi-employer scheme, meaning that if one employer collapsed, the others would bear its responsibilities to its pensioners, such that default would require the bankruptcy of every institution, that is, the collapse of the UK university and research community. Combined with extensive state funding of the higher education sector, this has been thought to make the risk of default very low.:9

At the schemes inception, contributions were 16% of salary, with employers paying 10%, and members paying 6% plus a 2% surcharge aimed at covering benefits for service prior to the schemes inception. From 1983-1997, the employers contribution rate increased to 18.55%. From January 1997 to September 2009 it decreased to 14%, and employee contribution reduced to 6.35%. The employer contribution was increased to 16% in October 2009.

The defined benefit of the scheme was to consist of a one-time cash lump sum of 3/80ths of the final salary and an annual income of 1/80th of retirees final salary plus. Each of these are multiplied by the number of years of contributions. for purposes of calculation, the final-salary is revalued each year in line with inflation.

From its inception, USS was the main pension scheme for UK academics and for the senior administrative staff of universities and similar higher-education or research institutions. This dominance was lessened, however, when the Further and Higher Education Act 1992 created numerous new universities, whose employees (old and new) remained in the state-run Teachers Pension Scheme. From 10 December 1999, any employee of a UK higher education institution became eligible to join USS if they wished.

By 2014, USS had become the UKs second largest pension scheme, with 316,440 active members, deferred pensioners and pensioners. It was, by this measure, the worlds 36th largest. 374-79 separate institutions participated in the scheme, and its assets were valued at £42 billion.:9:15 In 2017 it had 190,546 active members.

Few changes to USSs rules were made until October 2011, when dramatic changes were implemented,:3:25 partly in response to losses resulting from the Great Recession, and consequent increased projected scheme deficit:

The changes were the subject of heated public controversy between USSs institutional sponsors and the schemes members, represented by the University and College Union, and involved lengthy industrial action.:15 Researchers did find, however, that the pre-October 2011 scheme was not viable in the long run, whereas the post-October 2011 scheme was probably viable in the long run, though it faced medium-term problems as the effects of the changes on the state of the fund would take time to be felt.:14

Subsequent research found that these rule changes reduced the states tax subsidy to members by £1.86 billion and to sponsors by £0.9 billion, increasing UK government wealth by £2.86 billion. Whereas young members joining the pre-2011 scheme could expect their net wealth to increase by £181,000 (£133,000 gross) relative to opting out of the scheme, those joining the post-2011 CARE section could expect a much smaller increase: £98,000 (£46,000 gross).:21 An earlier study by the same researchers concluded that the reduced wealth of post-2011 entrants was equivalent to an 11% drop in their total compensation or a 13% drop in their salaries.:25 The researchers nonetheless found that the scheme remained attractive.:21

Despite the changes of 2011, with ongoing weak economic performance associated with the Great Recession, USS continued to identify deficits, leading to further negotiations, industrial action, and eventually dramatic changes being implemented in April 2016. The key changes were:

By 2017, the scheme had over 400,000 members. The USS scheme reported a technical deficit of £17.5 billion in July 2017, reported as the largest such shortfall in the UK at that time. Under diverse conventional accounting rules, the scheme has been in deficit for several years (see Figure). This varies depending on the rules used. For instance as of March 2010, the actuary estimated the scheme was 91% funded (£3.1 billion deficit) according to the scheme specific funding regime, 80% funded on an FRS17 basis, and 57% funded on a buy-out basis.

The USS Joint Negotiating Committee therefore made the following proposals, to be introduced after 1 April 2019:

UCU, whose objections to these proposals had been overruled, proceeded to ballot successfully for industrial action in an attempt to secure a more favourable settlement for members, leading to the 2018 USS pension dispute.

The scheme publishes detailed annual reports, available online. Through the 1990s and the first decades of the next century, the funds main asset classes were UK, European and US equities; US and UK bonds; UK property; and cash. USSs liabilities are all in sterling, and from April 2006, USS began hedging all foreign exchange risk (having previously hedged none). In 2011, the distributions were: UK equities 23.06%, EU equities 18.32%, US equities 18.32%, cash 5%, 10-year UK government bonds 12.3%, UK property 7%, hedge funds 8%, and commodities 8%.:19

The scheme has investment costs of 0.32% (32 basis points) and total annual administration costs of £124.9m (2017)

Commercial assets have included Telford Shopping Centre in Telford, Shropshire (sold to Hark Group and Apollo Real Estate), and the Grand Arcade development in Cambridge and Forestside Shopping Centre, Belfast. The latter was bought from Sainsburys for £50 million in 1998 and sold in 2001 for £70 million. They currently own Moto Hospitality. In 2013, Australian train operator Airtrain Citylink was purchased.

In 1997, following a sustained People and Planet campaign named Ethics for USS, USS established a policy on responsible investment, including appointing an advisor on the issue. The scheme came under renewed pressure from 2015, via the USS: Step Up campaign, which had noted investments in tobacco and fossil fuels.

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