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.
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.
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.
The money a pension scheme currently has.
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.
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.
Contingent contributions are additional monthly contributions, required in the event that the scheme funding level deteriorates below a certain threshold.
Arrangements that can be put in place to support the level of scheme funding. Contingent support, in the form of a contingent contributions arrangement, is being considered for the 2018 valuation.
The ‘covenant’ is the collective financial strength of all 350 employers in the USS scheme.
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.
A strategy designed to reduce the scheme’s exposure to risk arising from the uncertainty associated with aspects such as investment returns and people living longer.
The assumed return on an investment in percentage terms. It is used to calculate the future cost of benefits.
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.
See ‘What is the JEP?’
See ‘Joint Negotiating Committee’
The money a pension scheme needs now in order to be expected to meet all future scheme benefits.
The lower bookend is the percentage of salaries required to fund the cost of future benefits and recover the deficit as calculated on a technical provisions basis in the 2018 valuation, with the incorporation of some of the Joint Expert Panel’s recommendations. Contributions at the lower bookend (of less than 30% of salary) will be acceptable to the USS Trustee if employers agree to an appropriate contingent contribution arrangement.
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.
The USS Trustee has agreed to provide employers with a ‘rebate’ against what it deems to be the required level of contributions to fund the cost of future benefits and recover the scheme’s deficit (the upper bookend). The rebate will be given in return for employers’ acceptance of an appropriate contingent contribution arrangement for the 2018 valuation (see lower bookend).
A Recovery Plan is one of the formal documents required to conclude the valuation of a pension scheme. The recovery plan sets out the duration and level of deficit recovery contributions that are required.
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.
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.
A qualitative assessment of the amount of risk that key stakeholders are willing to take.
Schedule of contributions
A Schedule of Contributions is a formal document required to conclude the valuation of a pension scheme. It sets out the levels of contributions required from both employers and scheme members, and confirms when these contributions are due.
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.
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.
This is the metric that is monitored to decide if contingent contributions are triggered and become payable.
This has two components:
- a specified level which needs to be breached by the trigger metric before contingent contributions become payable
- a minimum time period for which trigger metric must remain above the specified level before the contingent contributions are triggered
See ‘University and College Union’
In the USS Trustee’s view, the upper bookend is the percentage of salaries required to fund the cost of future benefits and recover the deficit in the scheme, as calculated on a technical provisions basis in the 2018 valuation. The upper bookend figure is proposed to be 33.7% of salary.
See ‘Universities UK’
An assessment of a pension scheme’s overall financial health.