This means the scheme is projected to pay out more in pensions than it expects to have money coming in. In the latest draft valuation in 2017, USS estimated the deficit at £7.5 billion.
USS is legally required to demonstrate to the Pensions Regulator that it can balance that deficit, so an agreement is needed between employers and employees in the scheme as to how they will do that – whether by increasing contributions or removing benefits.
Valuing a pension scheme is incredibly difficult. The benefits employees are promised depends on variations in a number of factors over 30 years. This includes how long members live, how rates of inflation and interest vary over this period, and how investments perform. So even tiny variations in these predictions can lead to valuations which are billions of pounds apart. That is why there has been a dispute between UUK and UCU over the value of the pension. This dispute led to UCU members voting in favour of industrial action, which happened in February.
In March 2018, UCU and UUK agreed to form a Joint Expert Panel (JEP) to review the 2017 valuation. USS is optimistic that this panel will come to a consensus. But if it does not, Rule 76.4 of the USS scheme will come into play. This allows USS to impose a valuation on employers and employees if no decision is reached and ultimately involves increasing the contributions required to be paid into the scheme.
In April 2018, Oxford University’s Council committed to seek to provide pension provision of the same standard as it is now, subject to its duties to serve the interests of the University as a whole. So if the University’s contributions increase significantly to make up the deficit, it will face some difficult budgetary choices about where to find the money for this. Equally, if Rule 76.4 is imposed, staff contributions could rise.