Universities Superannuation Scheme
The Universities Superannuation Scheme is a pension scheme in the United Kingdom with over £50 billion under management. Its members include academic and academic-related staff (including senior administrative staff) in many United Kingdom universities, mainly those that were universities prior to 1992 (staff in the post-1992 universities are mostly members of the Teachers Pension Scheme). In 2006, it was the second largest private pension scheme in the UK by fund size. The headquarters of Universities Superannuation Scheme Limited (USS) are in Liverpool.
The Federated Superannuation Scheme for Universities, 1913-1974Edit
In 1911 the President of the Board of Education established an Advisory Committee on University Grants. This research formed the basis of the predecessor of USS, the Federated Superannuation System for Universities, which was approved by the Board of Education and membership became compulsory for new appointees post 1 October 1913. The basic plan criteria were:
- the benefit was an annuity or cash payment through an insurance policy maturing at age 60
- optionally, benefits were available for dependants on death in service
- the policy was held in trust by the member’s institution and was transferable to a new institution if required or to an individual on leaving the University service
- members contributed 5% of salary and the employer matched this until 1920 when the employer contribution was increased to 10%
- administrative staff on salaries comparable to academic staff were also eligible to join.
However, perceived drawbacks of the scheme were that it did not link to final pay, access was contingent on a medical examination, there was no guarantee for dependents, little provision for risk benefits, and no indexation of benefits. Hence it compared unfavourably to the defined benefit scheme already enjoyed by school teachers under the School Teachers (Superannuation) Act 1918. From 1958 to 1969 several committees were established to review the present arrangements. The recommendations for a defined benefit scheme were initially rejected by universities in 1960 and again by a committee in 1964, who concluded it was “unable to make a clear recommendation in favour of either system”.
Universities Superannuation Scheme, 1974-2011Edit
In 1969, a Joint Consultative Committee (JCC) for the reform of FSSU was established, and commissioned a report from G. Heywood (the FSSU Consulting Actuary) that included a proposed outline for USS. It was to be a one-eightieth scheme with a three times annuity lump sum, available to new entrants only. No medical examination was required and pensions would not be increased.
A meeting to discuss the structure of USS took place in Liverpool on the 28 December 1970. The proposal for an independent company was approved by the JCC in November 1971, and endorsed by the CVCP in December 1971. The FSSU Executive Committee was “unenthusiastic”. Drafting of the rules began in 1971, with the seventh draft being agreed in August 1973 and circulated to universities along with an explanatory booklet. The scheme was finally introduced on 1 April 1975. The scheme was a 'balance of cost' scheme in which the sponsors bear the risk of default, and specifically a 'last-man-standing multi-employer scheme', meaning that if one employer collapsed, the others would bear its responsibilities to its pensioners, such that 'default would require the bankruptcy of every institution, that is, the collapse of the UK university and research community'. Combined with extensive state funding of the higher education sector, this has been thought to make the risk of default very low.:9
At the scheme's inception, contributions were 16% of salary, with employers paying 10%, and members paying 6% plus a 2% surcharge aimed at covering benefits for service prior to the scheme's inception. From 1983-1997, the employers' contribution rate increased to 18.55%. From January 1997 to September 2009 it decreased to 14%, and employee contribution reduced to 6.35%. The employer contribution was increased to 16% in October 2009.
The defined benefit of the scheme was to consist of a one-time cash lump sum of 3/80ths of the final salary and an annual income of 1/80th of retiree's final salary plus. Each of these are multiplied by the number of years of contributions. for purposes of calculation, the final-salary is revalued each year in line with inflation. 
From its inception, USS was the main pension scheme for UK academics and for the senior administrative staff of universities and similar higher-education or research institutions. This dominance was lessened, however, when the Further and Higher Education Act 1992 created numerous 'new universities', whose employees (old and new) remained in the more generous state-run Teachers' Pension Scheme. From 10 December 1999, any employee of a UK higher education institution became eligible to join USS if they wished.
By 2014, USS had become the UK's second largest pension scheme, with 316,440 active members, deferred pensioners and pensioners. It was, by this measure, the world's 36th largest. 374-79 separate institutions participated in the scheme, and its assets were valued at £42 billion.:9:15 In 2017 it had 190,546 active members.
Changes of 2011Edit
Few changes to USS's rules were made until October 2011, when dramatic changes were implemented,:3:25 partly in response to losses resulting from the Great Recession, and consequent increased projected scheme deficit:
- USS closed its final salary scheme to new members, replacing it with a career average revalued earnings (CARE) scheme for new members.
- The retirement age was linked to the UK state retirement age.
- Contribution rates for members still in the final salary section rose from 6.35% to 7.5%.
- The scheme changed from being 'balance-of-cost' (in which sponsors are ultimately responsible for meeting promised pensions) to a 'cap-and-share' rule, in which extra contributions would, if necessary, be met 35% by members and 65% by sponsors.
- The indexation of deferred pensions and pensions in payment was changed from the retail price index to the less generous consumer price index, and uprating of accrued benefits was capped.
The changes were the subject of 'heated public controversy' between USS's institutional sponsors and the scheme's members, represented by the University and College Union, and involved lengthy industrial action.:15 Researchers did find, however, that 'the pre-October 2011 scheme was not viable in the long run', whereas the post-October 2011 scheme was 'probably viable in the long run', though it faced medium-term problems as the effects of the changes on the state of the fund would take time to be felt.:14
Subsequent research found that these rule changes reduced the state's tax subsidy to members by £1.86 billion and to sponsors by £0.9 billion, increasing UK government wealth by £2.86 billion. Whereas young members joining the pre-2011 scheme could expect their net wealth to increase by £181,000 (£133,000 gross) relative to opting out of the scheme, those joining the post-2011 CARE section could expect a much smaller increase: £98,000 (£46,000 gross).:21 An earlier study by the same researchers concluded that the reduced wealth of post-2011 entrants was equivalent to an 11% drop in their total compensation or a 13% drop in their salaries.:25 The researchers nonetheless found that the scheme remained attractive.:21
Changes of 2016Edit
Despite the changes of 2011, with ongoing weak economic performance associated with the Great Recession, USS continued to identify deficits, leading to further negotiations, industrial action, and eventually dramatic changes being implemented in April 2016. The key changes were:
- The final-salary pension scheme (only available to members who joined before the 2011 changes) was closed. Benefits previously accrued were protected, but were frozen at a level relating to an employee’s salary as of March 2016 (uprated annually by inflation).
- All active members thereafter switched to the CARE scheme, with benefits being based on career-average earnings.
- Defined benefits could now only be earned on the first £55,000 of a salary. For salary payments over £55,000, employers paid 12% of salary into a defined contribution scheme, with staff having the option of topping it up by paying in an extra 1%, matched by the employer.
- Defined benefit accrual was raised from one eightieth to one seventy-fifth of pensionable salary.
- Employee contributions rose to 8%, and employer contributions from 16% to 18% of salary.
Changes proposed for 2019Edit
By 2017, the scheme had over 400,000 members. The USS scheme reported a technical deficit of £17.5 billion in July 2017, reported as the largest such shortfall in the UK at that time. Under diverse conventional accounting rules, the scheme has been in deficit for several years (see Figure). This varies depending on the rules used. For instance as of March 2010,  the actuary estimated the scheme was 91% funded (£3.1 billion deficit) according to the scheme specific funding regime, 80% funded on an FRS17 basis, and 57% funded on a buy-out basis.
The USS Joint Negotiating Committee therefore made the following proposals, to be introduced after 1 April 2019:
- The defined benefits section of the scheme would close (with a possibility of reintroducing it). All future benefits (apart from death in service and ill health retirement benefits) would be transferred to the defined contribution (DC) scheme.
- Member contributions would remain at 8%. Members would gain an option of paying in only 4% while still receiving the full employer contribution. The employer match of the first 1% of any voluntary employee savings would be lost. Members’ contributions would include a contribution to finance death in service and ill-health retirement benefits.
- Employer contributions would remain at 18%. Of this 13.25% would build employee DC pension pots, with the other 4.75% used for deficit recovery (plus management and running costs).
UCU, whose objections to these proposals had been overruled, proceeded to ballot successfully for industrial action in an attempt to secure a more favourable settlement for members, leading to the 2018 USS pension dispute.
The scheme publishes detailed annual reports, available online. Through the 1990s and the first decades of the next century, the fund's main asset classes were UK, European and US equities; US and UK bonds; UK property; and cash. USS's liabilities are all in sterling, and from April 2006, USS began hedging all foreign exchange risk (having previously hedged none). In 2011, the distributions were: UK equities 23.06%, EU equities 18.32%, US equities 18.32%, cash 5%, 10-year UK government bonds 12.3%, UK property 7%, hedge funds 8%, and commodities 8%.:19
The scheme has investment costs of 0.32% (32 basis points) and total annual administration costs of £124.9m (2017) 
Commercial assets have included Telford Shopping Centre in Telford, Shropshire (sold to Hark Group and Apollo Real Estate), and the Grand Arcade development in Cambridge and Forestside Shopping Centre, Belfast. The latter was bought from Sainsbury's for £50 million in 1998 and sold in 2001 for £70 million. They currently own Moto Hospitality. In 2013, Australian train operator Airtrain Citylink was purchased.
In 1997, following a sustained People & Planet campaign named 'Ethics for USS', USS established a policy on responsible investment, including appointing an advisor on the issue. The scheme came under renewed pressure from 2015, via the 'USS: Step Up' campaign, which had noted investments in tobacco and fossil fuels.
In 2017, it was found that the USS pension scheme has offshore investments in tax havens.
Criticisms of USS employee pay and scheme running costsEdit
From at least 2015, criticism of the high pay of certain USS employees grew. In 2014, USS's highest-paid executive, received a 50% pay increase, to £900,000. In 2018, it was noted that pay for USS's chief executive rose from £484,000 in 2017 to £566,000 in 2018, while two staff members earned over £1m, and running costs stood at £125m per annum.
- "2011 Actuarial Valuation". Universities Superannuation Scheme Ltd. Retrieved 2012-07-25.
- Universities Superannuation Scheme Limited. "History of the scheme". Archived from the original on 2006-10-06. Retrieved 2007-02-09.
- "Contact USS". Universities Superannuation Scheme Ltd. Retrieved 2012-04-09.
- Douglas Logan, The Birth of a Pension Scheme. A History of the Universities Superannuation Scheme (Liverpool University Press 1985).
- Emmanouil Platanakis and Charles Sutcliffe, 'Asset–Liability Modelling and Pension Schemes: The Application of Robust Optimization to USS', The European Journal of Finance (2015), 1-29, doi:10.1080/1351847X.2015.1071714.
- Susan Cooper, 'A Pensions Proposal: Constant Contributions' (p. 1).
- John Board and Charles Sutcliffe, 'Joined‐Up Pensions Policy in the UK: An Asset‐Liability Model for Simultaneously Determining the Asset Allocation and Contribution Rate', JEL, 40 (Autumn 2007), 87-118 (p. 102) (first published in Handbook of Asset and Liability Management, edited by Stavros A. Zenios and William T. Ziemba, (North Holland Handbooks in Finance, Elsevier Science B.V., Volume 2, 2007, pp. 1029‐67 ISBN 0444528024).
- "Benefits earned before April 2016 | The USS scheme | For members | USS". www.uss.co.uk. Retrieved 2018-09-08.
- 'What will the end of final-salary pensions mean for academics?', Times Higher Education (12 March 2015), URL.
- Emmanouil Platanakis and Charles Sutcliffe, 'Pension Scheme Redesign and Wealth Redistribution Between the Members and Sponsor: The USS Rule Change in October 2011', Insurance: Mathematics and Economics, 69 (2016), 14–28. doi:10.1016/j.insmatheco.2016.04.001
- USS. "2017 Report and Accounts.pdf" (PDF). Retrieved 28 February 2018.
- Emmanouil Platanakis and Charles Sutcliffe, 'Pension Schemes, Taxation and Stakeholder Wealth: The USS Rule Changes', ICMA Centre, Discussion Paper Number: ICM-2017-08 (23 January 2018): https://ssrn.com/abstract=3039364; doi:10.2139/ssrn.3039364
- 'USS to adopt CPI inflation measure', The Financial Times (23 January 2011).
- Jack Grove, 'New USS Pension Reform Plans to be Put to Union Vote', Times Higher Education (15 January 2015).
- 'Universities’ main pension pot faces the biggest deficit of any British fund', The Economist (3 August 2017).
- USS (31 March 2010). "USS Report & Accounts for the year ended 31 March 2010. (pages 54 & 96)" (PDF): 1–100 – via USS.
- 'Proposed changes to future USS benefits'.
- "UCU announces 14 strike dates at 61 universities in pensions row". www.ucu.org.uk. Retrieved 2018-02-06.
- "University strike: What's it all about?". BBC News Online. BBC. Retrieved 24 February 2018.
- Jane Deith, 'University staff strike over pensions', Channel 4 News (22 February 2018).
- "Report and accounts | Running USS | USS". www.uss.co.uk. Retrieved 2018-03-04.
- UK pension scheme buys Brisbane railway Money Management 27 March 2013.
- George Hammond, 'Universities encouraged to Step Up for more ethical pensions', Ethical Consumer (8 April 2016).
- "More than 100 universities and colleges in Offshore Leaks data - ICIJ". ICIJ. 2017-11-17. Retrieved 2017-12-14.
- "Subscribe to read". Financial Times.
- Sean Coughlan, '[www.bbc.co.uk/news/education-43157711 University pension boss's £82,000 pay rise]', BBC News (22 February 2018).
- E.g. Christine Berry, 'USS is the tip of the iceberg. Our pensions system is a hot mess', OpenDemocracy (1 March 2018).
- GR Macdonald, Fifty years of the F.S.S.U. (1965).