Universities Superannuation Scheme deficit: where are we now?

As part of our Higher Education blog series, we look at the actuarial valuation of the Universities Superannuation Scheme (USS) and what the outcome for 2017 might be.

It seems like the 2014 actuarial valuation of the USS has only just finished. The increasing deficit led to lengthy negotiations/consultations with HE Institutions and Trade Unions, and resulted in changes to the benefits for employees.

However, thoughts are already beginning to turn to the 2017 valuation – particularly since market conditions have (so far) deteriorated further since 2014. If current conditions continue, what might that mean for the next valuation outcome?

In 2014, the valuation deficit was £5.3 billion. The cost of future benefits (under the new structure) was around 23% of salaries (paid for by 7.1% on average from members, and 15.9% from employers). Adding in the cost of paying off the deficit over 17 years took the total employer contribution rate to 18%.

We do not have detailed membership and asset data for the USS, but there is enough publically available information to plot the likely progress of the deficit in broad terms; this can be seen on the graphic below. The solid orange line shows that the funding level may have fallen to around 82%, well below the expected figure of around 90% based on the 2014 valuation assumptions (shown by the dotted orange line).

These figures suggest that the deficit may have increased to around £11bn, but perhaps even more importantly, the cost of benefits under the new structure may have increased from 23% to around 30% of salaries. The combined impact of these mean that if the same approach is adopted at the previous valuation (with no changes for members), the employer cost might increase to around 27%.

The actual position at the 2017 valuation will depend upon gilt yields then, and investment performance from now on.