Published by Paul Hamilton on
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.