Update on USS pensions

Dear colleagues,

We wanted to update you with the latest information about the Universities Superannuation Scheme (USS). This will be of particular interest to those staff who are members of USS.


Pension schemes generally fall into two types. A Defined Benefit (DB) scheme is one where the employee is more certain what pension they will receive as it is linked to their salary. A Defined Contribution (DC) scheme is one where the employee and employer pay an agreed amount and this is then invested to pay out a pension in the future.

The Universities Superannuation Scheme (USS) is open to Grades 6-9. You pay 8% of your salary and the University pays 18%. All members join the USS Retirement Income Builder which is a Defined Benefit Scheme. Your pension is based on how long you have been a member of the scheme and your salary up to an annual threshold. The annual threshold is currently £55,550 but is regularly revalued. Contributions on earning above the salary threshold are automatically placed in the USS Investment Builder which is a Defined Contribution Scheme. All current USS members can opt to join the Investment Builder by paying an Additional Voluntary Contribution (AVC), either by way of the 1% matched AVC or an unmatched one.

The current situation

USS is required by law to undertake a valuation as at 31 March 2017. Since the 2014 valuation, economic conditions for Defined Benefit pensions have worsened. As a result, the position at the 2017 valuation is much more difficult than expected. The greatest challenge at this valuation is the significant rise in the cost of future benefits, which has risen by over a third since the last valuation. USS’s funding deficit has also increased to approximately £7.5bn. The Pensions Regulator has already written to USS Trustees in September expressing concerns.

If the current level of defined benefits continued to be available, Universities UK (UUK) calculate that this would constitute an additional cost equivalent to at least 11% of salaries. As part of this valuation, UUK have consulted employers and their finding is that most employers are not in a position to pay more than 18% as this would divert money from other areas such as teaching or research. Furthermore employees would not welcome an increase above their current 8% contribution.

The proposals

Views on the scale of reform needed vary across the sector, with some institutions having more acute funding challenges than others. However, as a consequence of the consultation UUK believe that significant benefit reform is necessary to ensure that the scheme is on a sustainable footing for the long term. They are recommending that the scheme moves to a Defined Contribution scheme (i.e. the USS Investment Builder) for all members regardless of salary.

Benefits already accrued by members will be unaffected and are protected under law. The change will only affect benefits going forward. The death in-service and incapacity benefits will remain the same and it is possible that the Defined Benefit element will be re-introduced in future if valuations improve.

UUK’s proposal is designed to manage risk within USS while simultaneously offering benefits to employees. Any changes will be negotiated nationally and any proposal will be subject to a consultation with all affected employees.

We fully appreciate the prospect of change to the pension scheme may be unsettling for some of our workforce. However, given the economic climate UUK, representing all of the employers, believe that reform is necessary now to ensure sustainability of the scheme and to continue to offer benefits to current and future employees.

The Vice Chancellor and Dr Steve Wharton are members of the USS Trustee Board having been nominated by UUK and UCU respectively. The Vice Chancellor has delegated all decision making concerning the USS negotiation in Bath to avoid any conflict of interest in this matter.

Questions about USS can be directed to the Pensions Office at the University. We will also keep you up to date as the valuation process progresses.

Martin Williams                                                                               Richard Brooks

Director of Finance                                                                          Director of Human Resources

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