Glossary of terms including the parties involved
Universities UK (UUK)
UUK is the collective voice of 136 universities in England, Scotland, Wales and Northern Ireland. It is the nominated formal representative for over 350 employers participating in the USS pension scheme. Visit the UUK website
University and College Union (UCU)
UCU is a trade union that represents staff at UK universities. It is the nominated formal representative for USS scheme members. Visit the UCU website
Joint Negotiating Committee (JNC)
The JNC decides how increases in costs to the scheme should be met after the USS scheme has established the contribution rate required for the current level of benefits. The JNC’s options are to increase contributions or change future benefits or a combination of both. The JNC can also feed in its views on a number of other areas in the scheme, including the level of risk to take when calculating the contribution rate required.
The JNC is made up of five representatives from UCU, five representatives from UUK, and an independent chair.
The Pensions Regulator (TPR)
The Pensions Regulator is a public body, sponsored by the Department for Work and Pensions, set up to protect people’s savings in workplace pensions. One of the Regulator’s key priorities is to reduce the risk that pension schemes will require taxpayer support to meet their obligations.
The Universities Superannuation Scheme pension is used by 350 employers nationally and it is the second largest private pension scheme in the UK by fund size. At Imperial, all staff in the academic and research job family, and staff at levels 4 and above in the professional, technical and operational job families are eligible to join the scheme.
The legal obligation on the USS Trustee is to ensure that the pension fund is financially stable in accordance with rules set by the Pensions Regulator.
Joint Expert Panel (JEP)
The Joint Expert Panel (JEP) has been set up to examine the valuation of the Universities Superannuation Scheme (USS). The JEP is tasked with agreeing key principles to underpin the future approach of the University and College Union (UCU) and Universities UK (UUK) to the USS valuation.
As outlined in the panel’s terms of reference, a report from the JEP was published in September 2018. The second phase of work on the USS valuation has two parts; the first is concerned with the valuation process and governance, the second with the long-term sustainability of the scheme. Visit the JEP website
An actuarial valuation
A valuation is a financial health check of a pension scheme. It is a check to make sure the money it currently has, and the contributions being paid in by employers and employees, are enough to pay the promised pensions in the future. A valuation must be carried out at least every three years by law.
Firstly, the Trustee must assess the strength of the 350 employers that back USS - this is known as the covenant. The Trustee needs to know how much it can rely on these employers now and in the future as this will affect what they can invest the scheme’s money in. They need to take many factors into consideration including how an employer might be affected by an economic downturn, global events e.g. COVID-19, levels of employer debt, and student numbers. The stronger the covenant strength, the more investment risk the Trustee may take, as any shortfall can be assumed to be covered by the employer. A downgrading of covenant strength would mean less chance of relying on the employer and, therefore, less risky investment decisions.
Then, the Trustee, supported by a specialist called an actuary, looks at all the pensions and lump sums they have promised to pay - these are the scheme’s liabilities. In order to do this the scheme will use the membership data which shows the age, gender, length of membership and salaries of members. They will then estimate how the liabilities will increase in future in line with inflation, and how long pensions will be paid for (which depends on how long people will live for), and how the scheme’s investments will perform in future.
This tells the Trustee how much money they should currently have in order to be confident of being able to pay all the promised pensions. When they do this, they are legally required to be prudent – to make assumptions that are expected to overestimate the amount they need now. How prudent they are will depend on their view of the strength of the employers. This assessment gives a value of the liabilities at the valuation date.
This liability value is then measured against the current assets to assess the funding level. The assets are where all the scheme's funds are invested. These might include investments in the stock market, bonds, hedge funds and money directly invested in commercial property, infrastructure and transportation. If the assets are lower than the liabilities, then the scheme has a funding deficit. If the assets are higher, then the scheme is in surplus.
They’ll also look at the pensions that will build up in the future (for members paying in now and in the future) to ensure that the contributions will also be enough to meet the promised pensions as they build up. If there is a mismatch, then contributions may need to be increased or the pensions that build up in the future may need to be reduced.
The whole process may take several months and requires the Trustee to consult with UUK, who act on behalf of the employers. The employers will be asked to consider the assumptions the Trustee is using and the level of risk the scheme takes on and will need to agree to a recovery plan if it's found the scheme is in deficit.
The recovery plan will need to set out how and for how long any extra contributions will need to be made for. The recovery plan also needs to be accepted by The Pensions Regulator.
The employers will also be asked to agree to the rate of contributions needed to pay for future pensions.