A message to USS members from Bill Galvin


uss3This message went to members of the University Superannuation Service pension scheme last week. It contains many of the message that this blog has tried to put over (rather better!). It also provides an answer to the question of whether the internal costs of USS have run out of control.

At yesterday’s pension play pen lunch- 16 good people earnestly and jocosely engaged with the question “what is the best discount rate to use for large pension schemes?” and concluded that it depended on the employer covenant – not just the strength of the employer, but the willingness of the employer to support the payment of a wage in retirement going forward. In this memo to members, Bill Galvin speaks not just to his members but his participating employers. I know Bill and vouch for his integrity.



Dear member,


USS’s Annual Report and Accounts were published last week for the year ending 31 March 2017.  There has been some press coverage of the scheme, and it is important you understand the key facts:


• Scheme funding levels (based on interest rates at 31 March 2017) remained stable at 83% in the year despite challenging economic conditions. They continue to be lower than the 89% level judged at the last formal valuation in 2014.

• Strong absolute investment returns of over 20% in the year sees the scheme fund grow to over £60bn.

• The absolute level of the funding shortfall would increase from £10bn (2016) to £12.6bn as at 31 March 2017, based on market interest rates on that day.

• Relative to our investment performance benchmarks, the investment team added £1.1bn in value to the scheme over the last five years, making a substantial contribution to the funding position.

• Scheme benefits changes agreed in 2015 were implemented during 2016, including increased member and employer contributions.

• Major transformation of USS systems were successfully completed to deliver the scheme changes.


Scheme funding

The main reason for the growth in deficit is the large drop in long term interest rates in the year.  


You may have seen a larger deficit reported in the media recently of £17.5bn. That calculation is based on accounting rules and is not the figure that drives the benefit and contribution decisions for the scheme. It assumes the scheme’s assets are wholly invested in AA rated company loans. The scheme’s assets are invested in a diversified portfolio of equities and infrastructure, as well as government and corporate debt. The scheme’s investment strategy is to look to participate in the growth of the global economy to contribute to the cost of pension provision, but only to the extent that our sponsoring employers can make up the difference if growth is lower than anticipated.


The funding position deals in some large numbers, but the sector is large too. The payroll of contributing members is £8bn with £2.1bn in new contributions to the scheme every year. Over 350 employers back the scheme with total net assets exceeding £50bn. The position is within the affordable limits of the employers which has very close oversight, led by Universities UK.  


Members pensions earned to date are secure.


2017 valuation

The 2017 valuation is underway with a full review of all assumptions.  We plan to consult with employers on our proposed assumptions and the associated results in September. Initial analysis points to expected future investment returns being lower across all asset classes.


This would lead to a rise in the expected cost of future pension benefits – for everyone in society whether your pension is with USS or not.  Universities Superannuation Scheme Limited, the trustee company, deals with these issues transparently and openly with its employer and member stakeholders. Decisions on the impact are ultimately taken by the Joint Negotiating Committee, made up of equal representations from employers and union with an independent chair, and fully consulted on with employers and members.


The trustee is keeping members informed through a dedicated section on its website https://www.uss.co.uk/how-uss-is-run/valuation


Investment performance and management

USS is a long term pension provider and investor for a long term sector.  We measure our performance over five years.  This is to allow the teams to take longer term positions that may not pay off over any single 12-month period. The teams are measured and rewarded on five-year targets, incentivised to make good decisions for the long term. Our returns have exceeded 12% per annum over the past five years, and in this period the teams have added £1.1bn of value to the scheme above market returns for equivalent asset classes. In the year to March 31 2017, performance was 2% below the benchmark, largely as a result of a short position versus our benchmark in UK government debt; this is not necessarily an indicator of poor long term performance.


It is crucial, particularly in times of economic uncertainty and reduced market outlook, that we can attract good-quality investment staff who are able to achieve such strong long-term results for the benefit of the scheme – but, for the fund management sector, we do not pay market leading rates.


The £1bn of added value achieved over the five years to March is net of investment management costs. We achieve such strong results at much lower costs than our peers – independent benchmarking says around £34m per annum cheaper – in part because we actively manage more than 70% of our assets in-house, rather than paying external management fees.


Our goal is a diverse portfolio enjoying the benefits from global growth. On your behalf, we have invested in Heathrow, we own a port in Virginia, USA, and the toll roads and gas distribution networks in Spain; these investments have, generally, done very well for the scheme.  USS has the scale to make these investments at lower overall management costs than other organisations, and we look to ensure we have the talent necessary to manage these programmes.


We are confident that the breadth and diversity of assets and capabilities deployed for the scheme will continue to pay off over longer periods.



USS is run solely for the benefit of members and, in turn, their employer’s benefit. It is both a well-run and well-governed scheme that provides secure and very good value pensions.


Despite the difficult times in the global economy, it will continue to do so, with the backing of the sector’s employers and the comprehensive skills and capabilities it has built up over many years.


I am happy to receive any of your comments and suggestions, which can be submitted through our website: https://www.uss.co.uk/public/contact-us


The website has the full report and accounts; comprehensive details of our governance structures, and information on the 2017 valuation. I would encourage you to learn more about the scheme here, and form your own opinions on how we have performed.



Bill Galvin

Chief Executive

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to A message to USS members from Bill Galvin

  1. Bill Galvin writes that “The scheme’s investment strategy is to look to participate in the growth of the global economy to contribute to the cost of pension provision, but only to the extent that our sponsoring employers can make up the difference if growth is lower than anticipated.”

    The current reference portfolio is 70% invested in return-seeking equities and property. The “can make up the difference” requirement is spelled out by USS’s self-imposed “Test 1” requirement that it be possible to transform this return-seeking portfolio into a self-sufficiency (gilts + 0.5-0.75) portfolio with comparable expected returns via nothing more than a 7% increase in employer contributions. Given how low the gilt yield is, this requirement is suffocating the DB pension scheme and may force its closure.

    At the end of his message, Galvin welcomes the submission of comments and suggestions. Below is a link to my submission, in which I advance the hypothesis that the current return-seeking portfolio already provides the protection against downside risk which Test 1 is supposed to secure at much greater expense:


  2. henry tapper says:

    Thanks Mike – this I hope is being read at USS HQ – it is good that you guys have this debate in public as it impacts not just current members but members of future generations of academics, technicians and all the other people who join USS. Debora Price spoke eloquently for you at the lunch yesterday!

  3. John Mather says:

    The USS would have a more stable long term population than most other careers so DB works well not so easy when it comes other entities where the career term is 4 years at best and the life expectancy of the company is less than the member

    Interesting solution to the cost argument
    maybe if the general public took a greater interest in their own affairs then there would be less need for advisers generally

    “in part because we actively manage more than 70% of our assets in-house, rather than paying external management fees”

    With only 1300 shares on the London Stock Market and a similar number on AIM surely a rewarding and simpler exercise to monitor and analyse direct holdings than the volume of managed collectives

    The UK funds industry is dominated by equity funds, with 1,194 equity funds in IA sectors, compared to 292 fixed income funds and 525 mixed asset funds.

    Improving the dividend reinvested rather than paying a significant % in fees has been shown to dramatically improve individual outcomes

  4. After the hysteria, a voice of calm.
    Accounting measures are not actuarial funding measures.
    For what my opinion is worth, a concise, clearly written communication to members who have had to endure some doubtful ‘expert’ reaction in the last couple of weeks.

  5. Totally agree with this.

    Die-hard self-promoters of 100% bond yield measuring (and investment) in the media, where their knowledge appears to be limited to ‘snapshot’ simple mathematics based on yields etc, with no apparent understanding of economic history, and a mantra of ‘you have to be able to measure it on my terms or you can’t manage it.’ They should be ashamed and a bit more balanced in future as Bill Galvin has been here.

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