“The USS consultation highlights the important of “mutuality” to the covenant strength, proposing that employers should be required to commit to remain within USS in order to underpin / protect the covenant. Mutuality ensures that all employers support the USS together, rather than being responsible for just their own share of the liabilities. This concept has both facilitated the frictionless movement of Academics around the sector and underpinned the strength of the USS’ covenant.
“However, the challenge with mutuality lies in its premise that all employers are treated the same (for example in terms of the contributions they make to USS). This comes into sharp relief when employers will not be impacted uniformly by either the COVID-19 pandemic or the wider socio-economic aftermath. There will be institutions which are better placed to address the challenges of Covid-19 than others.
“The USS’ proposals in relation to new debt are a clear sign that it sees some differentiation between employers as becoming necessary in that additional covenant support may be required from more highly leveraged employers. This is a sign that the concept of mutuality could be under some strain.
“Innovative thinking will be needed to navigate the USS 2020 actuarial valuation in a way that allows all employers to thrive. But if any sector is capable of truly innovative thinking….”
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