​What is the Pension Valuation?

The pension valuation judges how much money is in the fund, uses assumptions to estimate the growth of the assets against the liabilities, ie the pensions to be paid out in the future.  It provides an estimate of how much is needed in pension payments and asset growth to establish if there is enough money to pay every pension in the future? This valuation has to happen every three years by law, and the 2017 valuation estimates the current deficit to be £7bn.  The Pensions Regulator requires USS to demonstrate that the pension fund is viable before 30 June 2018. In order to do this the dispute on how to fund the shortfall is to be managed and the cost of future benefits agreed.  The entire deficit does not need to be paid in one year, it merely has to be shown how it will be reduced over a time to be agreed by the Pensions Regulator.  The affordability of the future benefits needs to be agreed with the USS Trustees and the Pensions Regulator.

The UCU do not agree with this pension valuation - and their argument is as follows.

The ‘Test 1’ valuation is a calculation of x minus y, where x is the money that the scheme currently has (£60.5 billion) plus the future interest on this, and y is all the money that has to be paid in pensions to current and future pensioners. If this sum produces a negative amount, then this is called a ‘deficit’ because the money that is in the scheme now will not pay all current and future pensions if every university and every member stopped paying in at once. That scenario is extremely unlikely, but is the flawed and invalid basis of the calculation.
As UUK have not yet announced the date at which HE as a sector is to end, and as HE is a sector and not a private business, UCU does not accept this methodology as appropriate, nor the deficit it creates. In addition to this, UCU commissioned actuarial advice which was published in September 2017:
The conclusions of this document were:
The current employers’ contribution rate of 18% of pensionable pay, of which 15.1% goes towards defined benefits, is prudent. The asset income which is required, in addition to contributions, to pay the benefits in full is low. Indeed, in a scenario of “best estimate” pay rises, the benefits of the USS can very nearly be paid from contributions, without reliance on the assets. We can be very confident that the scheme is not vulnerable to forced disinvestment. We can be very confident that the cash flow in will meet benefit outgo for the very long term, so in the meantime fluctuations of market value or the pension scheme’s balance sheet are of low importance...The USS does not have negative net cash flow and is not likely to have in future (subject to dealing with increasing longevity, as already noted). Cash and short dated investments are not needed to meet net outgo and to protect against forced disinvestment.