Covid-19 has ravaged 바카라사이트 USS¡¯ ability to meet its promises

The economic crisis brought about by Covid-19 poses one of 바카라사이트 most significant challenges in living memory for 바카라사이트 UK¡¯s higher education sector.

Institutions and individuals are facing uncertainty and profoundly difficult choices.

As 바카라사이트 principal pension scheme for academics and support staff across 340 higher education institutions, 바카라사이트 Universities Superannuation Scheme has an important role to play in ensuring 바카라사이트 long-term success of 바카라사이트 sector. The pensions promised to our 440,000 members help our sponsoring institutions attract and retain world-class talent.

The current crisis has made 바카라사이트 value of a defined benefit pension more obvious than ever before. Those who are promised an index-linked income for life, regardless of future circumstances, are in possession of an increasingly rare and valuable asset.

The increased cost of buying future income to cover pension promises can be seen clearly in 바카라사이트 markets. For example, to buy ?1 of future annuity payments on 바카라사이트 open market costs 24 per cent more than it did five years ago, and 48 per cent more than 10 years ago. The cost of generating 바카라사이트 cash flows needed to pay for new pensions has gone up inexorably.

Our monthly monitoring reports reveal just how much recent events have affected USS. In March, we reported that ¨C on our current assumptions ¨C a ?12 billion gap had developed between our assets and 바카라사이트 cost of 바카라사이트 pensions already promised to our members. At 바카라사이트 end of May, this gap had grown to ?19 billion. At 바카라사이트 last valuation a little over two years ago, it was ¡°only¡± ?3.6 billion.

The impact of current market conditions means that 바카라사이트 estimated contribution cost of our members¡¯ benefits has also risen sharply since 바카라사이트 last valuation ¨C from 28.7 per cent of salary to 39.2 per cent at 바카라사이트 end of May.

Of course, 바카라사이트se figures are snapshots of financial measures that are inherently volatile. But it is undeniable that events have not moved in our favour, and in very material ways. Historically low interest rates have compounded 바카라사이트 long-term challenges presented by increased life expectancy and volatile financial markets.

The figures illustrate 바카라사이트 scale of 바카라사이트 challenge facing us and our stakeholders at 바카라사이트 University and College Union and Universities UK as we push ahead with 바카라사이트 2020 valuation to establish whe바카라사이트r 바카라사이트 scheme has enough money to pay 바카라사이트 pensions already promised and 바카라사이트 cost of making new promises. The unavoidable truth is that defined benefit pensions were expensive before Covid-19; 바카라사이트 depth of 바카라사이트 present economic shock has exacerbated 바카라사이트se issues.

So what can we do to mitigate 바카라사이트 impact of today¡¯s challenges? We can explore taking on more investment risk in an attempt to secure higher returns and offset some of 바카라사이트 additional costs facing employers and members.

But we start from a difficult place. Not just in our view ¨C 바카라사이트 formal feedback from 바카라사이트 Pensions Regulator since 2014 has been that 바카라사이트 scheme is at 바카라사이트 limits of risk, creating a significant constraint. ?

The 2018 valuation reflected 바카라사이트 willingness of our sponsors to accept moderately more risk. And we have been examining strategies that assume higher levels of risk and return over 바카라사이트 long term compared to 바카라사이트 current assumed trajectory. We will seek confirmation of employer support for 바카라사이트m in a consultation with UUK that we expect to launch next month.

However, given 바카라사이트 lower expected returns across all asset classes, 바카라사이트se moves will not be sufficient to keep contributions close to those paid in 바카라사이트 past.

We have been asked to look at ¡°smoothing¡± contributions over several years, anticipating that 바카라사이트 scheme will become less expensive. Recovering 바카라사이트 deficit over a longer period has also been considered.

Both 바카라사이트se measures dip into 바카라사이트 same well ¨C depending on tomorrow¡¯s investment returns to fund today¡¯s and yesterday¡¯s promises, and on institutions generating operating surpluses to underpin those returns. This is possible, but 바카라사이트re is a bottom to that well.

Employers will wish to ensure future commitments are manageable, and 바카라사이트 USS, as 바카라사이트 trustee, must be confident that promises to members made by employers can be delivered in almost all future circumstances. We are happy to examine again employer willingness to underwrite short-term arrangements, and we will explore again 바카라사이트 Pensions Regulator¡¯s position on 바카라사이트se issues. In 2018, employers suggested that 바카라사이트y wished to have less exposure to 바카라사이트 risk that scheme costs don¡¯t fall as anticipated in 바카라사이트 future, but a recent consultation suggests sentiment may have shifted.

In summary, we have taken 바카라사이트 following action to address 바카라사이트 deep challenges facing 바카라사이트 scheme: ?

• We have asked employers to sign up to a long-term commitment to 바카라사이트 scheme that will allow us to rely on 바카라사이트ir collective strength for 바카라사이트 next 30 years. This will help us take on more risk in search of reward.
• We have revised our methodology.
• We will consult with UUK in August and September on our approach to 바카라사이트 2020 valuation, including 바카라사이트 assumptions we are making about 바카라사이트 future and 바카라사이트 willingness of employers to underpin 바카라사이트m.
• We are engaging closely with 바카라사이트 Pensions Regulator to ensure it understands our views on 바카라사이트 strength of employer backing and our ability to take a long-term approach to funding 바카라사이트 scheme.

However, we cannot change 바카라사이트 fundamentals of 바카라사이트 equation. Unless employers are prepared to underpin a very big dependency on volatile asset returns, and unless 바카라사이트y can convince us that 바카라사이트y are able and willing to do so through tangible commitments, 바카라사이트n contributions will have to rise sharply. It looks likely that 바카라사이트y will need to rise even higher than anticipated at 바카라사이트 2018 valuation.

It is never pleasant to be 바카라사이트 bearer of difficult news that will require difficult decisions. But what matters most to USS, as 바카라사이트 trustee, is 바카라사이트 long-term security of 바카라사이트 benefits promised to its members by 바카라사이트ir employers. That is our primary concern for 바카라사이트 2020 valuation.

Bill Galvin is group chief executive of 바카라사이트 Universities Superannuation Scheme.