The UK's largest private pension fund has told universities and their staff they will face extra costs if the scheme is to offset a deficit of nearly £18 billion.
Officials at the £67 billion Universities Superannuation Scheme (USS) opened a consultation with Universities on Monday to try and reach an agreement about how to tackle its growing deficit, which exploded from around £3 billion to a possible £17.9 billion with the onset of COVID-19.
To counter the current shortfall, the pension provider has suggested that universities hike contributions on employees payroll from the current 30.7% to anything between 40.8% and 67.9% of salaries.
This means that more than 300, 000 USS members would be forced to hand over more of their paycheck for the same pension package.
Employers promise our members retirement benefits regardless of what happens to the economy in the future. These promises are highly valued by our members, and our responsibility is to ensure that a USS pension remains a valued promise of security in retirement. The hard reality is that persistently low interest rates and greater uncertainty of future investment returns have created an environment where such promises have become increasingly expensive. With the Higher Education sector already facing considerable challenges, we are acutely aware of just how unwelcome the prospect of paying more for pensions will be.said USS' Group Chief Executive Bill Gavin
Like many pension schemes, USS was rocked by the economic shock waves which swept much of the globe in the wake of Coronavirus. The scheme was hit especially hard by the sharp decline in the interest rate and bond returns; leaving a black hole in its financial future.
In the consultation document, published on Monday, USS laid out plans to overhaul its investment strategy, including ploughing up to 50% of the fund into riskier investments with the hope of securing high returns over the short term to help plug the deficit.
It also informed universities that they could help lower the cost of the proposed new contributions by agreeing to prioritise their USS commitments over any new debt and pledging to remain part of the scheme for the next 30 years.
If these measures were to be followed by all of its employers, USS claims that the gaping fund deficit could be backfilled with contributions in the range of 40%, rather than the ghoulish 70% its members are currently faced with.
The news comes at a time when many universities are already struggling financially as a result of restrictions to movement amid the Coronavirus pandemic.
In June, the Institute of Fiscal studies reported that the industry as a whole had lost 7.5% of its annual income and that 13 unnamed universities faced the ‘very real prospect’ of insolvency without a government bailout.
Universities have until the end of October to tell USS how they plan to handle the recommendations.
Any changes to contributions will not come into effect until October 2021.
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