Plummeting stock market prices and rock-bottom interest rates may force the Universities Superannuation Scheme (USS) to raise contribution levels sooner than expected and to offer 鈥渕uch less generous鈥� pensions, experts have said.

The warning follows the USS鈥� declaring itself to the Pensions Regulator after triggering a sustainability metric, which saw the ratio between the scheme鈥檚 deficit and 10聽per cent of employers鈥� contributions over the next 30 years exceed 85聽per cent over five consecutive days.

The USS, whose board will meet on 26聽March to 鈥渇ormally review the scheme鈥檚 funding position鈥�, said the ratio was important because 鈥渦ncertainty for the scheme鈥檚 future funding means an increased dependency鈥� on universities.

The scheme鈥檚 trustee board and the regulator will now 鈥渃onsider the appropriate response鈥�, but one option under consideration is to bring forward an increase in contribution levels for staff and employers planned for October 2021, when contributions were set to grow to 11聽per cent and 23.7聽per cent, respectively.

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They currently stand at 9.6聽per cent and 21.1聽per cent, respectively, although the University and College Union is calling for a reduction in the employee rate to 8.4聽per cent. Staff at 52 pre-92 universities recently walked out for a total of 22 days over the contribution hikes.

Other responses could include moving the scheme鈥檚 valuation date from 31聽March 2020. 鈥淥ur current view is that Covid-19 will have a very significant near-term impact but is less likely to have a material impact as we look further out,鈥� a USS spokesman said.

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The Bank of England鈥檚 to cut interest rates to 0.1聽per cent 鈥� the lowest rate ever 鈥� on 19聽March is also predicted to increase pensions deficits even further by pushing up the USS鈥� liabilities.

Delaying the USS valuation may not help the situation significantly, even if the move is permitted by the Pensions Regulator, explained pensions consultant Bernard Casey.

鈥淲ill equity prices get back to anywhere like where they were? Probably not,鈥� said Mr Casey, who said there has been a 鈥渕ispricing of assets for quite a while鈥�.

With the USS already facing criticism for putting 鈥渢oo much trust in risky equities鈥�, which have now plunged in value, the regulator may feel vindicated in pushing the scheme to invest in less risky assets, added Mr Casey.

鈥淭he USS will have to rebalance its portfolio, and this will cost it money,鈥� said Mr Casey, who added that 鈥渢he best thing [that universities] could do is bite the bullet鈥nd make the scheme a聽lot less generous 鈥� which is a combination of lower benefits and higher contributions鈥�.

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John Ralfe, an independent pensions adviser, said more radical plans would be on the cards.

鈥淯nless the stock market recovered dramatically to close to pre-crash levels over the next 12 months, the closure of the USS鈥� defined-benefit scheme [in which retirees receive a guaranteed pension amount] to be replaced by a defined-contribution plan [where incomes are tied to the stock market] was inevitable,鈥� said Mr Ralfe. 鈥淓ven before this coronavirus crisis, the USS [had] a large deficit, and things have now got a lot worse.

鈥淚f the market is trading at 6,000 points within three months and back at 7,200 within a year, as the 2020 valuation is nearing completion, this episode will be dismissed as a blip,鈥� Mr Ralfe continued. 鈥淎nything less than this, and the scheme will have no room to manoeuvre to save defined benefits.鈥�

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Sam Marsh, president of University of Sheffield鈥檚 UCU branch and a UCU national negotiator for USS, said it 鈥渄oesn't make much sense to complete a valuation in the middle of huge uncertainty over the future." He added that the regulator is due to issue guidance by mid-April to schemes with an imminent valuation date.

Dr Marsh added that there was 鈥渓ittle to be gained by being alarmist about the future" following the Covid-19 financial crash.

鈥淚f state interventions around the world work to shore up the global economy then in the lifetime of an open scheme like USS, the epidemic may not have as much effect as it looks at present,鈥� he said, adding that 鈥淯SS's positive cashflow means it is well placed to take a long-term view without having to react quickly to market falls, and it's the long-term that's important for keeping the scheme open.鈥�

Commenting on triggering of USS metrics, which was first reported by , a UCU spokesman said the 鈥淯SS has underlying strengths, and it is important there are no snap judgements made at this time鈥�.

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鈥淭he scheme needs to ensure that decisions are taken after proper consultation with all stakeholders, including scheme members,鈥� he added.

jack.grove@timeshighereducation.com