BT has lost pole position as Britain’s biggest pension scheme – but the new top dog admits difficult times ahead as administrators struggle with a £7 billion deficit.
The Universities Superannuation Scheme (USS), which manages pensions for retirement savers in higher education, has nudged into the lead as the nation’s largest pension scheme with assets of £41.6 billion.
BT, which has long been the nation’s number one, slipped into second place with assets of £40 billion.
Pensioners are paid more than £100 million a month from the USS, while fund managers reportedly trade £1 billion a day to record a 7.9% investment return against a benchmark of 6.5%.
The figures come from the USS annual report, which has just been published along with accounts for the year ending March 31.
To bring down the deficit, the USS has set up a liability-hedging scheme with £2.7 billion of investment in gilts and swaps.
“The investment in the hedging programme will grow as market conditions and funding ratio allow,” said the USS report.
Despite posting a massive deficit, the USS is carrying out an assert evaluation to pinpoint the precise value of the shortfall.
The good news for higher education staff with money in the fund is the deficit is falling – down an estimated £4.5 billion from £11.5 billion last year. The drop is mainly due to improved investment performance across the markets rather than positive action on the part of fund managers.
“We do not know the exact value of the deficit at the moment, hence the valuation,” said a spokesman. “The shortfall could be more than £7 billion.”
To manage the shortfall, Universities UK, the umbrella group representing all UK higher education institutions, has started negotiations with staff and unions with a view to limiting the size of pensions.
The universities want to scrap a final-salary scheme for current members and restrict pensions under a formula based on an average career salary.
Employees starting a new pension were barred from the final salary scheme in 2011.
To make up for the loss of benefits, a direct contribution scheme with no guaranteed pay-out is proposed for any staff wanting to make extra retirement savings.
The BT scheme is also in deficit by an estimated £8.1 billion and the company faces making payments of around £1 billion a year to bring the fund back into the black.
The payments could threaten the company’s plans to bud for Premier League football rights for BT Sport, according to analysts Macquarie.