The Universities Superannuation Scheme has blamed a £7bn deficit rise over the past year on historically low gilt yields caused by quantitative easing (QE).
The scheme, which provides benefits to 300,000 academics and high-level further education administrators, said in its latest annual funding statement that since its triennial valuation in March 2011, its deficit had increased from £2.9bn to £9.8bn, with the funding level falling from 92% to 77%. USS said while it had seen a 24% rise in liabilities, assets increased by only 4.4%.
“Whilst members and beneficiaries can take comfort from the fact that their benefits are secure in the UK’s second largest pension scheme, backed by a substantial covenant, these are undoubtedly challenging times for pension schemes generally,” the scheme said. “USS is a long-term scheme and the trustee board has a long time horizon over which funding can be planned, given the status and longevity of the scheme’s sponsoring employers. USS provides secure benefits to almost 300,000 active, deferred and pensioner members, and the trustee board will continue to manage the scheme diligently and, where necessary, to revise scheme funding in conjunction with the scheme’s sponsoring employers and other stakeholders to ensure that it continues to meet its commitments both now and in the future. In February, the USS reported that its funding level had fallen from 103% to 92%, prompting an overhaul of its statement of investment principles.”
Research by Bluefin Corporate Consulting suggests the total deficit of the UK’s defined benefit pension schemes would be up to £375bn smaller had the recent QE programme not been introduced. Bluefin is urging the pensions minister, Steve Webb, to consider further measures to offset the impact of QE on pension schemes, including smoothing the discount rate used to value liabilities.
Julie Stothard, head of actuarial and investment at Bluefin, said: “Our research suggests the impact of QE on defined benefit scheme deficits is significant. For every pound the Bank has spent through QE, one pound has been added to DB pension scheme deficits. “There are a number of ways to potentially off set this impact. Countries such as Denmark, Sweden and the Netherlands have had considerable success by smoothing their discount rates.”
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