Pension regulator under fire over university fund valuation

The body representing hundreds of British universities has questioned the role of the Pensions Regulator in a recent valuation of the sector’s main retirement fund, which estimated a funding shortfall of up to £18bn.

Universities UK, which represents more than 340 higher education sector employers, said on Wednesday it was “particularly concerned” about the “influence” of TPR on the trustees of the £80bn Universities Superannuation Scheme during their health check on the plan’s finances.

The intervention came as concerns rose about another damaging industrial dispute after the USS last week proposed a near-doubling of university workers’ and employers’ pension contributions to repair the burgeoning deficit.

The USS estimated the deficit had grown from £3.6bn in 2018 to between £13.9bn and £17.9bn in March last year largely because of a worsening outlook for the investment returns needed to pay “defined benefit” pension promises to more than 400,000 members.

But in letters to both the regulator and USS trustees, published by UUK on Wednesday, the employer body said the involvement of the TPR in the valuation had pushed proposed contribution rises to plug the deficit into a range “where no proportionate or justifiable outcome” could be reached.

“The potential contribution levels being discussed in detail before Christmas were very different from those published following the period of intensive USS Trustee discussions with TPR,” the UUK letter said, urging USS trustees to rethink the valuation.

The letter added that some of the decision-making and process by USS trustees looked “odd”, including the extent of the influence of TPR in this valuation compared with previous valuations.

“If the new pricing leads to widescale industrial action then the practical consequence of TPR’s input may well be seen to cause what we believe would be unnecessary damage to employers,” UUK said in its letter to the regulator.

TPR said it was working with the USS and UUK whilst they agreed a long-term solution to the funding challenges faced by the scheme.

“Our role is to ensure that the trustee and the employers sponsoring the USS understand the risks in the scheme and are able to agree an outcome for the valuation which manages these risks appropriately so the scheme is sustainable over the long-term.” TPR said.

“We have discussed our views on the recent funding proposals with the USS, and earlier this month followed this with a letter to clarify these points in detail. We are also engaged with the UUK and University and College Union to discuss our approach and will continue to do that.”

USS said: “We are highly sympathetic to the challenges facing our stakeholders, and we will work with them closely as they confront the decisions that need to be made.”

The University and College Union, which represents staff, welcomed the intervention but said employers needed to “continue working” to push for a revised valuation and better deal for members.

“UCU has been demanding changes to USS’s fundamentally flawed 2020 valuation methodology as it risks destroying a healthy pension scheme,” general secretary Jo Grady said. “USS and the pension regulator must now change course.”