USS deficit traced to 1997 employer contribution cut by 4.55% of salaries

Michael Otsuka
Feb 21, 2018 · 1 min read

[UPDATE 22 February 2020: Click here for my most up to date thoughts on the ‘contribution holiday’. tldr: employers didn’t go on such holiday.]

[UPDATE 28 August 2018: Click here for more on the ‘contribution holiday’.]

Had employers not reduced their contributions into the Universities Superannuation Scheme (USS) from an 18.55% level in 1997 — which is higher than what is now claimed the limits of affordability — the scheme would not now be in deficit. See this passage from an open letter by Professor Tom Pike of Imperial College to his Provost and Head of Finance:

Older staff also question the validity of your claim to UUK that 18% represents the very limit of pension affordability to College. Imperial paid in 18.55% to USS alongside all the other employers in USS for nearly 14 years between 1983 and 1997, at a time when surpluses [in the university’s operating income] were a much smaller percentage of income. In fact the reduction to a 14% employer contribution level in 1997 with the benefit of hindsight can be seen as the source of the current technical deficit — if employers had maintained an 18.55% contribution there would be another £7 bn in the fund, based on the known subsequent net levels of USS investment return. I’m afraid your claim that College has increased their share of pension payments “by nearly 30%” is risible, given that such an increase does not even represent a return to the level prior to 1997.

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