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40 Financial Statements 2011-12

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

26 Universities Superannuation Scheme (continued) The USS is a last man standing scheme so that in the event of the insolvency of any participating employers in the USS, the amount of any pension funding shortfall (which cannot otherwise be recovered) in respect of that employer will be spread across the remaining participant employers and reflected in the next actuarial valuation of the scheme.

The trustee believes that, over the long-term, equity investment and investment in selected alternative asset classes will provide superior returns to other investment classes. The management structure and targets set are designed to give the fund a bias towards equities through portfolios that are diversified both geographically and by sector. The trustee recognises that it would be possible to select investments producing income flows broadly similar to the estimated liability cash flows. However, in order to meet the long-term funding objective within a level of contributions that it considers the employers would be willing to make, the trustee needs to take on a degree of investment risk relative to the liabilities. This taking of investment risk seeks to target a greater return than the matching assets would provide whilst maintaining a prudent approach to meeting the fund’s liabilities. Before deciding to take investment risk relative to the liabilities, the trustee receives advice from its investment consultant and the scheme actuary, and considers the views of the employers. The positive cash flow of the scheme means that it is not necessary to realise investments to meet liabilities. The trustee believes that this, together with the ongoing flow of new entrants into the scheme and the strength of covenant of the employers enables it to take a long-term view of its investments. Short-term volatility of returns can be tolerated and need not feed through directly to the contribution rate, although the trustee is mindful of the desirability of keeping the funding level on the scheme’s technical provisions close to or above 100% thereby minimizing the risk of the introduction of deficit contributions. The actuary has confirmed that the scheme’s cash flow is likely to remain positive for the next ten years or more.

At 31 March 2012, USS had over 145,000 active members and the institution had 1,420 active members participating in the scheme.

The total pension cost for the institution was £11.6m (2010-11: £10.7m). There are no prepaid or outstanding contributions at the balance sheet date. The contribution rate payable by the institution was 16.6% of pensionable salaries. Local Government Pension Scheme (LGPS)

The Essex County Council LGPS is a funded defined benefit scheme, with the assets held in separate trustee administered funds. The contribution rates for 2011-12 were 16.1% and 7% for employees (5.5% for manual workers). In addition, the University made a further payment of £1.571m (2010-11: £1.573m) towards the scheme deficiency.

In prior years University of Essex Commercial Services Limited was considered as a Small Admission Body and was grouped together with other similar employers. It was not possible to identify separately its share of the underlying assets and liabilities, the multi-employer exemption was taken and it was therefore accounted for as a defined contribution scheme.

Information is now available to identify the University of Essex Campus Services Limited liability within the LGPS pension scheme. These values are reflected in the consolidated Financial Statements.

The pensions cost is assessed every three years in accordance with the advice of a qualified actuary. The assumptions and other data that have the most significant effect on the determination of the contribution levels are as follows:

Last actuarial valuation Actuarial method Pension increases

Salary scale increases Market value of assets at date of last valuation (whole fund)

The proportion of members’ accrued benefits covered by the actuarial value of assets (whole fund) was 79.6%. Actuarial Assumptions

A full actuarial valuation was carried out at 31 March 2010, and updated to 31 July 2011 by a qualified independent actuary. The major assumptions used by the actuary were:

At Financial Assumptions Rate of increase in salaries

Rate of increase in pension payments Expected return on assets Discount rate for liabilities Inflation assumptions

Split of assets between investment categories Equities

Government Bonds Other Bonds Property Cash Other

July 2012 %

3.60 1.80 5.20 3.90 1.80

69.00 6.00 9.00

12.00 4.00 0.00


31 July 2011 %

4.30 2.80 5.80 5.10 2.80

68.40 7.00 8.50

11.30 4.80 0.00

31st March 2010 Projected Unit 2.7% per annum 4.2% per annum £3,085 million

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