Parliament Probes USS Pension Plan
The U.K.’s largest pension fund in the private sector said any cuts in benefits would be a matter for stakeholders to discuss.
A prominent member of British parliament and chairman of the work and pensions committee is pressing the country’s largest private-sector pension fund for details on how it will cut its £17.5 billion ($22.4 billion) deficit.
The Universities Superannuation Scheme, or USS, is set for closer scrutiny after the parliamentary committee’s chairman Frank Field wrote its trustee board asking how it plans to shore up its increasing shortfall. With more than £60 billion in assets under management, USS tends to be the preferred pension plan for lecturers and academic staff working at most pre-1992 universities in the country.
The scheme revealed last month in its annual report and accounts that in the year ended March 31 its deficit about doubled from £8.5 billion a year earlier. That meant its funding level dropped to 77 percent from 85 percent.
“The large and growing funding gap gives rise to serious concerns about how USS intends to address this deficit and the implications for sponsoring institutions and their funding model,” Field wrote in the letter to the pension fund. “The prospect of students incurring higher tuition fees and student debt partly to cover the burden of historic DB pensions entitlements that they can never hope to enjoy in their own future careers is an important issue of intergenerational fairness.”
Field said the sustainability of DB, or defined benefit, pension plans was a major concern for the work and pensions committee in the previous U.K. parliament, and suggested it would continue to be a priority when it reconvenes in the fall.
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Any changes to benefits for members of the USS scheme to help address its deficit is “a matter for stakeholders to decide,” said a spokeswoman for USS. “Given the lower prospects for future returns and the need to keep asset-liability volatility in the scheme within the risk parameters agreed with sponsors, the price of pensions will have increased since 2014,” she said.
The University and College Union, a trade union representing members who participate in the USS pension plan, heavily criticized a previous reduction in the scheme’s benefits. The changes were met with protest throughout the U.K. higher education system.
“UCU felt that previous benefit changes were unnecessary and arose due to the overly cautious approach adopted by USS,” a UCU spokeswoman said in a statement. “The employers’ assessment of the deficit risk remains overly cautious.”
The exact size of the deficit is a bone of contention. While the £17.5 billion shortfall is accurate as measured under financial reporting standards in the U.K., others point to the smaller, £12.6 billion deficit that may be calculated under “technical provisions” set under rules governed by Britain’s Pensions Regulator.