Brexit turmoil ‘pushes university pension deficit to £15 billion’

Boom If this surprises you, then you have not been paying attention. USS is in very serious trouble, post BHS scandal I expect Universities to have to make some further lump sum payments to reduce the deficit, just as we face a reduction in students (UK demographics) and grants. I think Employers will also up contributions for the new USS scheme, tinker with revaluation rates and keep the cap (ie not inflate it). As to old USS, my guess is they will stop AVCs pretty soon, harden terms for early retirement, indexing and sickness. (essentially Mr Micawber). A dose of inflation will help. When I say help I use it in a cynical way. It helps in two ways 1 'drag', I owe you 100 now and pay you in two years, if inflation is 5% but your 100 gets a 1% uplift, then I save around 8. This is the RPI vs CPI, caps on levels etc. The bigger the gap between actual inflation and the inflation in the scheme levels / caps the smaller the deficit will become. 2 The second way is higher inflation in the end higher gilts, so a bit easier to pay the costs. (As to point 2, the longer the BoE holds down gilt yields (to promote economic growth) the longer the benefit from 2 will take to appear.) Where this all gets interesting (neutral word) is in the annual accounts, continuing solvency requirement and covenant. The deficit in USS goes on individual University balance sheets. There are rules about how bad these are allowed to look before the Pensions Regulator and SFC/HEFC intervene. Keynes said it best, the market can remain irrational longer than you can remain solvent. USS was a huge bet, poorly understood and not dealt with nearly quickly enough when its risk began to crystallise (around 2000, John Ralfe first sounded the alarm). It has the potential to bust some Universities and I predict it will if overseas student numbers sharply decline, austerity continues, gilts stay low, growth falters and inflation remains subdued over the coming five to ten years. I agree this is perhaps low probability, but its now non zero.

So, worth, or not worth, taking the option of adding the extra 1% into the system to be matched?