The Universities Superannuation Scheme¡¯s latest full actuarial valuation is pretty certain to report that the scheme is in surplus for the first time since 2008.

Confirmation of this is dependent on our consultation with Universities UK, launched this week, and any decisions our stakeholders go on to make ¨C but, even if only provisionally at this stage, being in surplus marks a very big turnaround in circumstance for the USS.

The surplus has been driven by rising UK interest rates as policymakers seek to tackle above-target inflation: we have seen a decade of declining interest rates reverse over just 18 months.

Financial markets were particularly volatile for large parts of 2022, but our investments performed comparatively well. The rise in long-term interest rates has seen the value of our liabilities fall by more than the value of our assets, leading to a much-improved funding position.

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At the same time, the cost of making new pension promises has fallen because the assets required to back those promises have become significantly cheaper, which means we can expect to make greater returns on those assets in future.

The net outcome of these changing market conditions is that the scheme will almost certainly have a multibillion-pound surplus and a materially lower overall contribution rate. This turning tide is great news for the scheme. Having wrestled with deficits and rising contribution rates for more than 12 years, the University and College Union and UUK ¨C which have equal representation on the USS¡¯ Joint Negotiating Committee (JNC) ¨C now find themselves in the very welcome territory of considering how to respond to very different circumstances.

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Most private defined benefit schemes in the UK are now closed. According to the , 90 per cent have closed to new members, while 53 per cent have stopped offering defined benefit pensions altogether. USS members account for almost a quarter of the 930,700 people in the UK who are still actively paying into private defined benefit schemes and the USS is in the 10 per cent of such schemes still open to new members. We very much want that to continue.

Our goal for this valuation is to continue to work collaboratively with our stakeholders to ensure the USS is positioned to deliver the benefits being promised. This reflects one of our key legal duties as trustee: the security of the benefits already promised (and being promised) to our members. We also know that the affordability of contributions for employers and members and the stability of benefits are important to the sector, and so the trustee places a high priority on this, too.

This requires a careful balance. It is clear from the joint statements issued recently by UCU and UUK that for the 2023 valuation they will prioritise the restoration of benefits earned from 1 April 2024 to pre-April 2022 levels. So we can anticipate that the benefits offered by the scheme in future will be improved. Given the significant improvement in the scheme¡¯s funding position, we can also anticipate that the contribution rate required to fund those benefits will be lower than that being paid today. And after such a difficult decade, and in the midst of a cost-of-living crisis, I am sure this will be a welcome change for members and employers alike.

But we should also be mindful of the pace of the economic changes we¡¯ve seen over the past 18 months. It is not possible to predict with any certainty where long-term interest rates, asset values and expected investment returns will be at future valuations (in three or six years¡¯ time). It is important, therefore, that we are clear about the potential risks ahead, consider any steps we might take to mitigate them, and ensure the scheme is more resilient than in the past should the challenges experienced over the past decade emerge again in future.

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A working group has been set up by the JNC to explore these issues in the longer term, and we look forward to supporting this work and participating in those discussions.

For today, I consider that the emergence of a provisional surplus could provide a platform for greater stability, depending on whether it is used or retained (in part or in full). The evolution of the scheme¡¯s investment strategy will also have an influence and we will be exploring that in more detail once the JNC has reached its conclusions in the coming months.

The conclusions we collectively reach through the 2023 valuation and beyond will ultimately reflect that we ¨C the trustee and the scheme¡¯s stakeholders ¨C want the USS to be the best scheme it can be: fit for the future, and offering valuable pensions, high standards of member service and good retirement outcomes for decades to come.

Dame Kate Barker is chair of the USS trustee board.

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