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Glossary of key terms

This glossary features definitions of terminology in relation to ongoing developments with the USS pension scheme. The definitions are based on UUK’s understanding and as such are not official, and are overridden by those contained within the scheme Trust Deed and Rules and pensions legislation.

Accrual rate
The proportion of salary a member receives annually as a pension in retirement (eg 1/75th). NB when using this rate to calculate the amount of benefits for each member, USS uses the average of a member’s salary from the point they joined the scheme until retirement.

Affordability

For employers, in essence: how much an employer can spend on pensions. Different employers will have different priorities, but it is likely that considerations will include attraction and retention of staff, value for money and the effects on other areas of expenditure such as wider reward, investment in capital projects, research and improvements in facilities.

Assets

The money a pension scheme currently has.

Benefits

Money received by an individual or their dependants from a pension scheme. Given at retirement or following other life events such as sickness or death.

Cost sharing

A policy in the USS scheme rules which imposes higher rates of contributions from members and employers. Enacted when no agreement is reached between UUK and UCU. Subject to a statutory consultation with scheme members.

Covenant

The ‘covenant’ is the collective financial strength of all 350 employers in the USS scheme.  

Deficit

A pension scheme is in deficit when the present value of its portfolio of assets  – including the returns it hopes to achieve on those assets – is less than the present value of its liabilities – including the estimated growth in value of the money it will need to pay everyone’s pensions when members can access them. The deficit figure is based on benefits earned by members up to the valuation date.

Deficit recovery contributions

A portion of the contributions to the defined benefit scheme that is used to try and close the deficit over a period of time.

Defined benefits (DB) scheme

A form of retirement savings where members are guaranteed a set amount of pension benefits, based on their salary and length of service.

Defined contributions (DC) scheme

A form of retirement savings where members are not guaranteed a set amount of pension benefits. The total amount of benefits they receive will depend on how much they and their employers contributed, and how well the pension scheme's investment fund has performed.

Discount rate

The assumed return on an investment in percentage terms. It is used to calculate the future cost of benefits.

Gilts
Bonds issued by the UK government which have a fixed interest rate. USS uses this rate, among other things, to calculate costs in a valuation of the scheme.

JEP

See ‘What is the JEP?

JNC

See ‘Joint Negotiating Committee

Liabilities

The money a pension scheme needs now in order to be expected to meet all future scheme benefits.

Prudence

In financial terms, being prudent means being cautious rather than optimistic when making assumptions about future investment returns and costs. Pensions legislation requires trustees to be prudent.

Reliance on covenant

Should the scheme enter significant financial difficulty, the scheme rules call on the 350 employers to bail it out. This ‘reliance’ has a monetary value, and is used to inform discussions on the future of the scheme.

Risk

Used in lots of contexts, but in essence the term encapsulates the trade-off between secure investments with low-returns, or less secure investments with potentially much higher returns.

Self sufficiency

The status a DB scheme achieves when it can rely on low-risk/low-return investments to pay all the pensions it owes, without expecting to need further contributions from the employer.

Test 1

A measure of risk used by the USS Trustee, which aims to ensure that DB benefits can always be funded, with a high degree of confidence. It aims to ensure that reliance on covenant can never exceed how much employers can pay, by altering other assumptions and calculating a different discount rate.

UCU

See ‘University and College Union

UUK

See ‘Universities UK

Valuation

An assessment of a pension scheme’s overall financial health.