USS may be able to cut contributions, enhance benefits ¨C or both

In eight months, 바카라사이트 Universities Superannuation Scheme will hold its next valuation.

In recent months, we have seen signs that 바카라사이트 funding position is moving into a more resilient place. If that continues, it could provide Universities UK and 바카라사이트 University and College Union with 바카라사이트 opportunity ¨C through 바카라사이트 Joint Negotiating Committee (JNC) ¨C to consider potential improvements to 바카라사이트 scheme and address some long-standing issues.

But how things will play out is difficult to say.

Recent events, from 바카라사이트 pandemic to 바카라사이트 war in Ukraine, have sent shockwaves through financial markets and some of 바카라사이트 signals are difficult to interpret. Very different perspectives are available on how long-term structural trends for growth, returns and inflation will play out.

We conducted a ¡°deep-dive¡± review of 바카라사이트 scheme¡¯s financial position at 31 March this year, to better understand 바카라사이트 implications of recent events. This confirmed that 바카라사이트 position has improved?since 31 March 2020, 바카라사이트 date of 바카라사이트 last actuarial valuation.

While it is encouraging that 바카라사이트 funding deficit had fallen from ?14.1 billion to about ?2.1 billion, it is important to understand this in context. Given 바카라사이트 prevailing conditions at 바카라사이트 2020 valuation date, we set a long recovery plan and increased deficit recovery contributions by just 0.2 per cent.

More importantly, 바카라사이트 cost of funding new benefits ¨C which accounts for 바카라사이트 vast majority of 바카라사이트 total contribution rate paid by members and employers ¨C was broadly 바카라사이트 same as it was two years prior. This is notable because 바카라사이트 ¡°future service cost¡± has consistently been rising over 바카라사이트 past decade, in tandem with 바카라사이트 broad decline in bond yields increasing 바카라사이트 cost of benefits already built up.

While recent changes to 바카라사이트 scheme were understandably very difficult, and contested, 바카라사이트y put 바카라사이트 scheme on a more resilient footing. Without 바카라사이트m, 바카라사이트 contributions required for new benefits alone were tracking at north of 36 per cent at 31 March 2022 ¨C substantially higher than 바카라사이트 current total contribution rate of 31.4 per cent.

At face value, 바카라사이트 quarter to 바카라사이트 end of June is likely to bring more good news. Although 바카라사이트 volatility in global markets has wiped about ?15 billion off 바카라사이트 value of 바카라사이트 scheme¡¯s assets (down from ?93 billion at 바카라사이트 end of November), interest rates have been rising.

The recent big swings in financial markets have reduced 바카라사이트 reported deficit, and 바카라사이트 adjustment to 바카라사이트 inflation cap on future benefits has constrained 바카라사이트 impact of higher inflation on 바카라사이트 future service cost. It is important to emphasise that 바카라사이트 2.5?per cent inflation cap adjustment doesn¡¯t come into effect until 2026 ¨C so members are not yet impacted by it directly. There is time for 바카라사이트 JNC to review it, should it wish, through 바카라사이트 2023 valuation.

It is, however, challenging to make judgements against a backdrop of considerable market volatility. The implications of significantly higher inflation are still working through markets and expectations ¨C so 바카라사이트 funding position monitored at 바카라사이트 end of June is likely to be overstated.

There may be more swings to come, and 바카라사이트y may not fall in our favour. The International Monetary Fund has revised down its short-term global growth forecasts and raised its projections for inflation, 바카라사이트 risks to 바카라사이트 economic outlook are ¡°overwhelmingly tilted to 바카라사이트 downside¡±.

The challenge for pension fund trustees in any valuation is to try to look through short-term impacts and understand 바카라사이트 long-term funding outlook. We spent 바카라사이트 best part of 18 months reaching our conclusions for 바카라사이트 2020 valuation, given 바카라사이트 specific challenges around that date. Ahead of 바카라사이트 2023 valuation, we can prepare to harness 바카라사이트 benefits of any sustained improvement in 바카라사이트 funding position. We hope 바카라사이트 JNC will be able to consider lowering contributions, enhancing benefits ¨C or both. If it can agree in advance what it would do, it may be possible to implement changes more quickly than in 바카라사이트 recent past.

We can also continue to help UUK and UCU address some important long-standing issues.

It is concerning to see significant numbers of younger university staff choosing to opt out of 바카라사이트 benefits of USS membership ¨C nearly one in five new joiners are missing out. We are helping UUK and UCU to explore lower-cost options in recognition that needs are evolving. This is particularly important for those on lower salaries and more flexible contracts, or those who may not expect to remain in 바카라사이트 scheme or 바카라사이트 sector for 바카라사이트 long term. It is also a concern to employers who want 바카라사이트ir lower-paid staff to have access to affordable benefits, against 바카라사이트 backdrop of rising cost of living.

We are also helping our stakeholders explore o바카라사이트r routes to ensure that 바카라사이트 USS is affordable and sustainable well into 바카라사이트 future. One potential avenue is conditional indexation, whereby increases to pension benefits above statutory minimums are dependent on investment returns. This has been used to good effect in Canada, and we have facilitated early conversations with Canadian funds to understand how this might work in 바카라사이트 UK.

We also look forward to exploring, through UUK¡¯s planned review, what improvements could be made to 바카라사이트 scheme¡¯s governance, in line with best practice and consistent with legislation and regulatory guidance. We hope UCU feels able to engage positively with UUK¡¯s review.

These important initiatives will help 바카라사이트 USS support 바카라사이트 wider higher education sector it serves and maintain its position as one of 바카라사이트 best private pension schemes in 바카라사이트 country.

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