USS benefits should be partially restored in light of improved 31 March 2022 funding position

Michael Otsuka
4 min readMay 30, 2022

As a result of the valuation of the financial health of the scheme as at 31 March 2020, large cuts to USS benefits were implemented on 1 April 2022. Assuming such cuts, this valuation asserted a deficit of £14.1bn, and the accompanying recovery plan called for deficit recovery contributions in excess of 6% of salaries per annum. The current schedule of contributions calls for contributions of 31.4% of salaries (21.6% employer, 9.8% member).

As at 31 March 2022, however, it would cost only 24.4% to fund this severely reduced pension provision, as indicated by USS’s just-released monitoring of the 2020 valuation in the light of “post-valuation experience”.

The indicative cost of funding benefits has dropped 7 percentage points between March 2020 and March 2022, owing to:

(i) A £22.3bn growth in the value of the assets from £66.5bn to £88.8bn, which has significantly outpaced the growth in the value of the liabilities, thereby reducing the deficit from £14.1bn (83% funded) to £1.6bn (98% funded) and required deficit recovery contributions from 6.2% to 0%.

(ii) A reduction in the cost of future service, from 25.2% as at 31 March 2020 valuation date, to 24.4% (including outperformance) as at 31 March 2022.

The total level of contributions required to fund the UUK-reduced pension provision was lower as at 31 March 2022 than at the end of every one of the previous six month (September-February) that USS has been monitoring since they submitted their 2020 valuation in late September 2021.

The 31 March 2022 report also involves more in depth analysis than the reports of the previous two months and will form the basis for the scheme’s required annual actuarial report on the financial health of the scheme.

In light of the above, UCU and UUK should:

  • Strongly back a request to the USS trustee to issue a new recovery plan that reflects the funding position of the scheme as at 31 March 2022, while otherwise retaining the same outperformance assumption and length as the current recovery plan.
  • Support a JNC resolution calling for a retroactive restoration of the benefits that were cut on 1 April, to the extent that 31 March 2022 post-valuation experience justifies when applied to a new schedule of contributions involving member contributions of 9.8% of salary and employer contributions of at least the current level of 21.6% of salary until 31 March 2024 and 21.4% of salary thereafter.

What follows is documentation that the above is consistent with the regulations, statute, and scheme rules.

I. Issuing of a new recovery plan and schedule of contributions

UUK’s CEO Alistair Jarvis has claimed that the 31.4% contributions “set out in the [current] schedule of contributions…are legally payable until superseded at a future valuation”.

This claim is false.

Even in the absence of a new valuation, USS could issue a new recovery plan and schedule of contributions now, which reflect the improved funding level of the scheme as indicated by their monitoring of the 2020 valuation

Here is how this could be done, in a manner that conforms to pensions regulations and statutes:

Regulation 8(5) of the Scheme Funding Regulations says: “A recovery plan may be reviewed, and if necessary revised, where the trustees or managers consider that there are reasons that may justify a variation to it” [emphasis added].

USS acknowledges that such revision might occur prior to the next valuation when they state the following in their recovery plan: “This recovery plan will be reviewed, and may be revised, following the Trustee’s next valuation under section 224 of the Pensions Act 2004, or earlier if the trustee so determines” [emphasis added].

Regulation 9(2)(c) says: “Where a schedule of contributions has been prepared, it must be reviewed, and if necessary revised — …(c.) within a reasonable period after any revision of a recovery plan under regulation 8(3) or (5).”

Any revised schedule of contributions must be certified by the scheme actuary. According to section 227(6) of the Pensions Act 2004:

The certificate must state that, in the opinion of the actuary —

(a) the schedule of contributions is consistent with the statement of funding principles, and

(b) the rates shown in the schedule are such that —

(i) where the statutory funding objective was not met [i.e., when there was a deficit] on the effective date of the last actuarial valuation, the statutory funding objective can be expected to be met by the end of the period specified in the recovery plan, or

(ii) where the statutory funding objective was met on the effective date of the last actuarial valuation, the statutory funding objective can be expected to continue to be met for the period for which the schedule is to be in force.

It follows from the above that, even in the absence of a new valuation, USS could revise the existing schedule of contributions by first revising the recovery plan in light of favourable post-valuation experience. The revised recovery plan and schedule of contributions would, however, have to be consistent with the existing statement of funding principles, which can be revised only after a new valuation.

II. Retroactive enhancement of benefits

The scheme rules allow for a decision at any time to improve benefits, by means of JNC recommendation of amendment to these rules, which the USS trustee approves. As USS has confirmed: “The JNC can propose benefit changes at any time.” Absent a new valuation, this improved package of benefits would need to be costed in accordance with the existing 2020 valuation. As mentioned above, however, the recovery plan and schedule of contributions of an existing valuation can be updated to reflect post-valuation experience.

Through application of Scheme Rule 34A (“Augmentation of Benefits”), the increase in benefits could involve a retroactive restoration of some or all of the cuts to DB accrual that took effect from 1 April 2022.

See this follow-up blog:

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Michael Otsuka

Professor of Philosophy, Rutgers. Previously on UCU national negotiating team for USS pensions.