The Universities Superannuation Scheme (USS) revealed it has seen a sharp rise in its funding deficit over the last year due to the impact of Covid-19.
The scheme's 2020 annual report & accounts, published today (29 July), revealed its funding deficit as at 31 March this year reached £12.9bn, compared to £5.4bn at the same time in 2019.
The scheme noted the sharp rise occurred despite strong long-term investment returns, and blamed low interest rates and poor market conditions due to the coronavirus outbreak for pushing its funding deficit up.
Additionally, the scheme saw assets reduce by £0.9bn (1.3%) to £66.5bn, while liabilities increased by £6.6bn (9.1%) to £79.4bn.
Its defined benefit (DB) fund stood at £66.5bn, while its defined contribution (DC) assets totalled £1.1bn.
Over the five years to 31 March 2020, the scheme's DB fund has grown by £17m, while USS Investment Management achieved five-year returns averaging 6.19% per year, outperforming its strategic benchmark by 0.91%.
USS revealed that if conditions at the end of June were read directly into the 2018 valuation's assumptions, the technical provisions deficit would be £20.2bn, consisting of £74.2bn in assets and £94.4bn in liabilities, the ‘self-sufficiency' deficit would be £34.4bn, and the future service cost would be 40.1% of USS payroll.
The scheme also noted that by managing most of its investments in-house, it saves £49m a year compared to its peers.
Group chief executive Bill Galvin said: "At 31 March 2020, coronavirus was sweeping across the world and financial markets were hugely uncertain about the potential outcome.
"Our 2020 report outlines the position of the scheme against this challenging backdrop. Five-year investment performance was strong in absolute and relative terms, and we retained our cost advantage versus peers.
"Even before Covid-19, historically low interest rates, increased life expectancy, greater regulation, and volatile financial markets had already made promises of a set retirement income for life more expensive."
He continued: "The depth of the economic shock brought about by the pandemic has highlighted the long-term challenges facing open DB pension schemes like USS; challenges that we intend to work with our stakeholders - Universities UK and University and College Union - to address through the ongoing 2020 valuation."
The scheme's annual report comes amid a difficult six months for USS, following the strike action at 74 UK universities across the country in a continuing dispute about pensions and pay, and valuation difficulties as a result of methodology changes.
The publication comes as USS also names Dame Katherine Barker as chairwoman of the trustee board from September. She will replace current chairman Sir David Eastwood, who announced he would retire in August after 11 years on the board.
The Pensions and Lifetime Savings Association (PLSA) has launched a call for evidence on a proposal for a solution designed to support savers navigating pension freedoms as they move towards retirement.
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