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38 Financial Statements 2011-12

Notes to the Financial Statements For the year ended 31 July 2012

26 Pension Schemes The University has three principal pension schemes for employees. These are the Universities Superannuation Scheme (USS) and the Local Government Pension Scheme (LGPS) and the University of Essex Pension Scheme (UEPS). The assets of the schemes are held in separate trustee-administered funds. All three schemes are defined benefit schemes and are contracted out of the State Earnings-Related Pension Scheme.

USS is a mutual scheme and the assets are not hypothecated to individual institutions and it is therefore not possible to identify its share of the underlying assets and liabilities.

LGPS became a closed scheme from August 1997 and subsequently all non-academic and related staff who were not members of a pension scheme could join the UEPS. As UEPS became a closed scheme from March 2004, all new staff are now eligible to join USS.

The total pension cost for the University and its subsidiary undertakings was:

2011-12 £’000

Contribution to USS Contribution to LGPS

LGPS additional University costs to fund past service deficiency Contributions to UEPS

Uof EPS additional University costs to fund past service deficiency Net adjustment from FRS 17 staff costs Total pension cost

The total FRS 17 pension liability for the University and its subsidiary undertakings was:

2011-12 £’000

LGPS pension liability UEPS pension liability Total pension liability

(18,708) (5,784)


2010-11 £’000

(16,016) (1,331) (17,347)

Universities Superannuation Scheme (USS) The University participates in the Universities Superannuation Scheme (USS), a defined benefit scheme which is contracted out of the State Second Pension (S2P). The assets of the scheme are held in a seperate fund administered by the trustee, Universities Superannuation Scheme Limited.

The appointment of directors to the board of the trustee is determined by the trustee company’s Articles of Association. Four of the directors are appointed by Universities UK; three are appointed by the University and College Union, of whom at least one must be a USS pensioner member; one is appointed by the Higher Education Funding Councils; and a minimum of two and a maximum of four are co-opted directors appointed by the board. Under the scheme trust deed and rules, the employer contribution rate is determined by the trustee, acting on actuarial advice.

The latest triennial actuarial valuation of the scheme was at 31 March 2011. This was the second valuation for USS under the new scheme-specific funding regime introduced by the Pensions Act 2004 requiring schemes to adopt a statutory funding objective, which is to have sufficient and appropriate assets to cover their technical provisions. The actuary also carried out regular reviews of the funding levels. In particular, he carried out a review of the funding level each year between triennial valuations and details of his estimate of the funding level at 31 March 2012 are also included in this note.

The triennial valuation was carried out using the projected unit method. The assumptions which have the most significant effect on the result of the valuation are those relating to the rate of return on investments (i.e. the valuation rate of interest), the rates of increase in salary and pensions and the assumed rates of mortality. The financial assumptions were derived from market yields prevailing at the valuation date. An inflation risk premium adjustment was also included by deducting 0.3% from the market-implied inflation on account of the historically high level of inflation implied by government bonds, particularly when compared to the Bank of England’s target of 2% for CPI which corresponds broadly to 2.75% RPI per annum.

To calculate the technical provisions, it was assumed that the valuation rate of interest would be 6.1% per annum, salary increases would be 4.4% per annum (with short term general pay growth at 3.65% per annum and an additional allowance for increases in salaries due to age and promotion reflecting historic scheme experience, with a further cautionary reserve on top for past service liabilities, and pensions would increase by 3.4% per annum for 3 years following the valuation then 2.6% per annum thereafter.

11,552 362

1,571 645 768

(1,960) 12,938

2010-11 £’000

10,717 465

1,525 778 646

(1,877) 12,254

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