2026 USS valuation

You may be aware that UCEA is currently carrying out an initial consultation with its members on the likely outcomes of the 2026 USS Valuation.

The SWG is also considering potential outcomes and recently submitted a report to the higher education committee (HEC) to inform ongoing engagement. Now that HEC has had its input into this process, I wanted to write to branches and pension officers to set out the current direction of travel on the 2026 USS valuation and ask branches to engage their institutions to inform a Technical Provisions consultation that will take place between July and September this year.

It is really important to set out at the beginning that these are preliminary views based upon likely outcomes from the 2026 valuation. We will continue to review our position as data on the valuation emerges and we engage in wider consultation on this technically complex and evolving issue.

Background

Considering the USS paper 'Charting a course for the USS 2026 valuation', it seems that the 2026 valuation is likely to report a surplus of at least £10bn, from liabilities of less than £70bn and assets of around £80bn yielding a funding ratio of at least 115%. It may also report a slightly lower cost of future benefits than the current rate of 20.6%.

Recognising that the USS timeline for the valuation and consultations lasts through to the end of 2027 and that the trustee will only confirm contribution rates this October after the July to September Technical Provisions consultation, I wanted to set out our initial views on the contribution rates, benefits and use of surplus.

Stability of valuation methodology

The main source of historic USS instability has been the USS approach to valuation methodology. We are pleased that USS is likely to adopt most of UCU's proposals for the 2026 valuation methodology which, if properly implemented, will improve stability.

As this work evolves it will be essential for USS to share full details of their valuation methodology and justification for valuation decisions in a clear way that allows for reproducibility and ongoing close scrutiny by stakeholders and scheme members.

Stability of contribution rates and accrual of future benefits

The current contribution rate, set from the 2023 valuation, is 20.6% (14.5% employers, 6.1% employees). These values are low relative when compared to historic averages, and low compared to the 2020 rates, which rose to 31.4% (21.6% employers, 9.8% employees) and very low compared to the proposed 2020 rates which approached 50%.

It is clear there should be no reduction in members' future benefit accrual rate and inflation protection. This is especially so given the sector-wide erosion in pay relative to CPI.

There are good arguments for lowering the joint contribution rate below its current 20.6%. Scheme members and employers would pay less into the scheme to get the same benefits meaning higher take home pay for members and savings for employers. Both would be welcome during this cost of living crisis.

However, there would also be risks. Lower contributions rates could impact long-term stability of the scheme and would likely lead to increased rates in the future. As savings are split between members and employers, savings would likely be minimal for this increased risk. More time is needed to assess the impact of the new valuation methodology and the scheme may well need protect from future economic shocks given the economic uncertainty across markets and any impact on inflation.

We have therefore taken an initial view that contribution rates should remain at least at 20.6% (14.5%, 6.1%) to protect long term stability, allow time for the new valuation methodology to demonstrate reliability, protect future members benefits, and protect members' total remuneration.

Surplus, historic overpayments and previously accrued benefits

As a reminder, for the 2023 valuation, a funding ratio of 111% and a surplus of £7bn was reported of which £1.2bn was used to augment those benefits with lower accrual 2022-2024, the two years of benefit cuts. At the same time contribution rates were reduced early to include removal of the cost of funding a non-existent deficit. Most of this cost-saving benefit was gained by employers.

We believe that for this valuation, as a priority and as agreed in 2023, an appropriate amount of the surplus is retained in the scheme, for example by similarly requiring a funding ratio of 110-115% to secure future stability.

Historic high payments could be addressed with, for example, a one-off CPI+x% increase to all post-2011 CRB benefits (where x% is a percentage increase that is paid from the surplus). This would be applied to all scheme members who accrued benefits since 2011 to date of implementation meaning active, deferred and pensioner members would all benefit. This is one option and there are other possibilities not ruled out which may be useful to explore.

Recommendations

Having considered various options, HEC agreed to the following recommendations as a direction of travel for UCU regarding the 2026 USS valuation. As stated previously, we will continue to monitor this situation as more information becomes available.

1. We should, on balance, provisionally retain the current Future Service Contribution Rate (FSCR) of 20.6% pending the outcomes from the 2026 valuation
2. We should set a buffer for any surplus spend at a funding ratio of around 110%-115% to be reviewed pending the outcome of the 2026 valuation and setting of the FSRC
3. We should, on balance, argue for a CPI+x% arrangement for post-2011 CRB benefits as a priority as an equitable outcome as it covers all Active, Deferred and Pensioner members whose benefits were impacted during the last decade of increases to contribution rates. It is also administratively easier.

Actions

I would now ask branches to consider two actions:

1. That you provide feedback to me (Dooley Harte) on the information above setting out your thoughts on what UCU should be arguing for as part of the 2026 valuation. This feedback can then be considered by the SWG
2. That you consider engaging your institution to inform their response to the initial UCEA employer consultation, closing on 27 March 2026, and the Technical Provision consultation later this year.

I am of course happy to discuss and can set up an online discussion if you wish.

Dooley Harte
UCU pensions official (USS)