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USS pension deficit shrinks from £14bn to £1.6bn in two years as markets surge

The head of the UK’s largest private pension plan has said the scheme’s funding position had proved “resilient” after its £14bn deficit, which prompted strikes by thousands of university staff, shrank to £1.6bn in two years as markets surged.

Bill Galvin, chief executive of the Universities Superannuation Scheme, the main retirement plan for the sector with 420,000 members, said on Monday the improved situation might enable the scheme to adjust the controversial cuts in benefits that triggered the industrial action by academics and other university staff.

The announcement prompted anger from members who had had their pension benefits cut in April.

In 2020, USS reported a £14.1bn deficit when it calculated its funding position in March of that year, as the pandemic ravaged equity markets.

It argued that cuts to retirement benefits, or an increase in contributions, were needed to fund the ballooning deficit driven by its dimming outlook for investment returns needed to fund new pension obligations.

These changes came into effect in April, prompting thousands of staff at dozens of campuses to engage in strikes and other industrial action. They claimed the changes were unnecessary because it was unfair that the valuation took place in March 2020 just as global markets were plunging.

In a monitoring update published on Monday, the USS said the funding hole had shrunk to £1.6bn because of asset prices surging more than the increase in its liabilities as the pandemic eased.

Between March 2020 and March 2022, its assets grew £22.3bn to £88.8bn compared with a £9.8bn increase in the cost of pension promises over the same period to £90.4bn, shrinking the deficit to £1.6bn.

In an email to hundreds of university employers on Monday, Galvin said that while not a predictor of what might emerge from the next formal valuation — due in March 2023, the update indicated that the scheme’s financial health was “more resilient and moving in the right direction”.

On Monday, Galvin, a former chief of The Pensions Regulator, said if the “positive experience” it had monitored over recent months became more established, there was “potential for better news at the next valuation than at those of the recent past”.

“Were such a scenario to play out, it may be possible for the Joint Negotiating Committee (part of a scheme’s governance body) to consider increasing benefits or decreasing contributions (or some combination of both),” Galvin wrote in the email to employers.

The University and College Union, which represents many staff, has said the graduation of tens of thousands of students was likely to be disrupted on account of the industrial action.

Staff at 21 universities are participating in a marking boycott in the crucial final term of the academic year.

UCU did not immediately respond to a request for comment on the monitoring report.

In a blog published on Monday, Michael Otsuka, who sits on the UCU’s national negotiating team, said the improved financial position made a strong case that benefits that were cut on April 1 should be restored.

He said UCU and Universities UK, which represents the sector, should “strongly back” a request for USS to issue a new recovery plan based on the improved financial outlook.

UUK said the “healthier financial outlook” was “encouraging”. 

However, it said it was as a result of recent changes to the scheme as well as market movements, and only related to a “short period”. A more detailed assessment would be available in early July, it said.

“We know a new valuation would take many months and divert focus away from fundamental reforms,” it said in a statement.

Sabina Gheduzzi, a lecturer at Bath university, tweeted: “Fair to say that many members will be fuming”.

Richard Reeve, professor of population and ecosystem health at Glasgow university and a UCU activist, tweeted: “So the #USSmess pension cuts were unnecessary, of course! With the revised funding position of the pension fund, it’s time for @USSEmployers to admit their mistake and back a JNC resolution calling for a retroactive restoration of the benefits that were cut on 1 April now!”

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