USS Valuation – time for a shift in mindset

Published by Paul Hamilton on

Estimated reading time: 3 minutes


With the benefit of hindsight, it’s easy to look at the Universities Superannuation Scheme (USS) valuations over the years and think about what could have been done differently. This year’s valuation feels to me like another instalment of previous discussions; another year of dashed hopes for improved funding. The same story, but each time the news gets worse.

Whatever your view on what has led to this point, it must now be time to stop kicking the can down the road. Time to grasp the nettle, bite the bullet and take the bull by the horns. I’m mixing in all these metaphors because this feels like the exact situation they were meant to describe. This is probably the worst time in many years for the sector to have to do this, but there isn’t a realistic alternative. Wishful thinking isn’t working.

The problem is knowing what to do. There are too many elephants in the room that need to be addressed before we can move forwards:

  • How to align differing needs of different employers? 
  • How to have an informed discussion about the cost of future benefits within the current regulatory framework, with its focus on closed schemes? 
  • What are the underlying assumptions around future investment return in the valuation implied by the “fundamental building blocks”? 
  • How involved should the USS be in initial discussions about possible future benefit design? 
  • Is it really clear how the money that is being paid into the USS is allocated between DC, DB accrual and deficit recovery contributions? 

We cannot see the woods for the elephants.

The biggest obstacle for those really wanting to understand the dynamics of the USS valuation is that it’s very hard to separate out the past service problem from the future service cost. My experience is that while the USS continues to quote one combined contribution rate covering past and future, it confuses and obfuscates all conversations. 

Is it really right that:

  • Newer USS employers pay the same share of the deficit contributions as older ones (who have incurred proportionately more of the liabilities over time)? 
  • An increase in deficit leading to higher contributions would (under the approach followed in the 2017 and 2018 valuations) be partially paid for by current active members (even if they’ve only just joined)? 

In my view, we need an informed and robust conversation now, creating consensus from employers, about how they are going to fund the past deficit that has built up. Without that, I don’t see how it is possible to move forward thinking about what is or is not an affordable benefit for the future.

And when we do get to thinking about future benefits, it is vital not to rush in to something to fit with a valuation cycle. Take the right time, and consider all options, or the cycle will continue.

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