University pension scheme, 10% owners of Heathrow, have £17.5 deficit in pension fund
Universities face a new blow to their finances after the main pension fund deficit has risen to £17.5bn. The Universities Superannuation Scheme (USS) now has the largest pensions deficit of any UK pension fund after it increased by £9 billion last year. One expert said student fees may have to rise or be diverted from teaching. But a USS spokesperson said the pensions were “secure, backed by a solid investment portfolio and the strength of sponsoring employers.” The USS funds pensions for academics who are mostly based in the pre-1992 universities, and has more than 390,000 members. The pensions deficit has grown rapidly since 2014, when benefits were reduced for new entrants to plug a £5,3bn deficit. The USS bought an 8% stake in Heathrow in 2014 and has since increased that to 10%. They also bought, in 2013, a nearly 50% stake in the Airlines Group, which owns almost half of air traffic controller, NATS. USS said: “USS pensions are secure, backed by a solid investment portfolio and the strength of sponsoring employers.” The owners of Heathrow are expected to put up money for the very expensive Heathrow expansion scheme, and will be needing large returns on their investment if the runway is ever built. Heathrow is having to cut the costs of its scheme, now saying it will delay a terminal + underground rail link, which it cannot afford.
University finances face £17.5bn pensions squeeze
29 July 2017 (BBC)
Universities face a new blow to their finances after the main pension fund deficit soared to £17.5bn.
The Universities Superannuation Scheme now has the largest pensions deficit of any UK pension fund after it increased by £9bn last year.
One expert said student fees may have to rise or be diverted from teaching.
But a USS spokesperson said the pensions were “secure, backed by a solid investment portfolio and the strength of sponsoring employers.”
The USS funds pensions for academics who are mostly based in the pre-1992 universities, and has more than 390,000 members.
‘Less money for teaching’
To ensure the fund remains solvent, the USS will have to submit a plan to the pensions regulator to reduce the size of the deficit, which was first reported in The Financial Times.
That could mean cutting the value of future pay-outs, increasing staff contributions or raising employer contributions, putting pressure on university budgets.
John Ralfe, an independent pensions consultant, said: “It seems inconceivable to me that student fees will not have to be diverted into plugging the pension deficit.
“That means either they go up or there is a smaller amount of money that can be dedicated to teaching and research. And obviously the student fees that are paid are for teaching and research, not to pay for the folly of USS betting on equities over the last few years.”
The pensions deficit has grown rapidly since 2014, when benefits were reduced for new entrants to plug a £5,3bn deficit.
John Ralfe, independent pensions consultant, says tuition fees could be used to plug the pensions gap
Mr Ralfe said poor management of the fund was to blame.
“I think the root cause of this is the USS trustees going down to the casino and betting the money that they had been given by universities, betting it on [the stock market],” he said.
Lord Adonis, who helped increase university tuition fees to £3,000 as head of the Number 10 policy unit under Tony Blair, agreed there were “big questions” over the schemes management and it was time for vice chancellors to “get their acts together”.
However, he said there was “no reason” for students to fear another rise in tuition fees to cover the costs.
‘Backed by universities’
A spokesperson for the USS said investments had outperformed their five-year target by more than £1bn, but the deficit was caused by liabilities growing even more quickly.
“USS pensions are secure, backed by a solid investment portfolio and the strength of sponsoring employers,” the spokesperson said.
The USS said that it was backed by universities which had net assets of more than £50bn.
University lecturers balloted for strikes in 2011 and 2014, when earlier changes were made to pensions.
Sally Hunt, general secretary of the University and College Union, said: “Recent years have not been good ones for members of USS as twice they have seen the value of their pensions reduced and been asked to pay more for the privilege.”
The Universities Superannuation Scheme is a pension scheme in the United Kingdom with over £50 bn under management. Its members include academic and academic-related staff (including senior administrative staff) in many United Kingdom universities, mainly those that were universities prior to 1992. (Staff in the post-1992 universities are mostly members of the Teachers Pension Scheme.)
It is the largest private sector pension scheme in the UK by fund size. The headquarters of Universities Superannuation Scheme Limited (USS) are in Liverpool.
The scheme formerly owned Telford Shopping Centre in Telford, Shropshire, prior to its sale to Hark Group and Apollo Real Estate. Other commercial properties in which it has been involved include the Grand Arcade development in Cambridge and Forestside Shopping Centre, Belfast. The latter was bought from Sainsbury’s for £50 million in 1998 and sold in 2001 for £70 million. They currently own Moto Hospitality.
In 2013, Australian train operator Airtrain Citylink was purchased.
The scheme reported a deficit of £17.5 billion in July 2017, the largest such shortfall in the UK at that time. During the previous financial year, its assets had reached £60 billion (a one-fifth increase), but its liabilities were £78 billion (a one-third increase over the previous year).
USS invests in Heathrow Airport
[Later increased to 10%]
The Universities Superannuation Scheme Limited (“USS”), one of the largest pension schemes in the United Kingdom, representing academic and related staff in the higher education sector, today announced that it will invest £392m in the UK’s largest airport on 24 October 2013. USS has reached an unconditional agreement with Ferrovial to acquire 8.65% of FGP Topco Limited, the holding company which owns Heathrow Airport Holdings Limited.
The transaction was arranged by USS Investment Management Ltd, a wholly owned subsidiary of USS and its principal investment manager and advisor, which will manage the investment on USS’s behalf. The investment will form part of USS’s infrastructure portfolio and is its largest investment in UK infrastructure to date. As a UK pension fund with a long-term commitment to provide high quality pensions for the higher education sector, USS finds UK infrastructure attractive for its members as it can provide inflation-linked, steady cash flows over a long time horizon, which match USS’s long-term liabilities.
Roger Gray, Chief Executive Officer, USS Investment Management Ltd said: “This is a significant investment for the scheme and its members in a premier UK infrastructure asset. We believe that investment in UK infrastructure is a win-win; promoting economic growth and jobs whilst providing attractive investments for the trustee board in meeting its commitments to members. This transaction represents a long term investment by USS in the future of London and the UK.”
Heathrow Airport is a national asset of key strategic importance. The airport has been redeveloped significantly over the last 10 years to become a leading European airport, and the airport of choice for passengers, businesses and airlines. Terminal 5 has been voted the best terminal in the world over the last two years and Terminal 2 is expected to be opened next year.
Michael Powell, Head of Private Markets, USS Investment Management Ltd said: “While the Civil Aviation Authority’s final Q6 regulatory proposals are very challenging, USS is investing for the long term. We have confidence that the right incentives will be set in place to encourage the investment that Heathrow and the UK needs. Heathrow Airport has a bright future as the UK’s only hub airport and we look forward to the outcome of the Davies Commission.”
Heathrow ownership now:
Our company, Heathrow Airport Holdings Limited (formerly BAA) owns and runs London Heathrow Airport, Britain’s aviation hub.
Heathrow Airport Holdings Limited is in turn owned by FGP Topco Limited, a consortium owned and led by the infrastructure specialist Ferrovial S.A. (25.00%), Qatar Investment Authority (20.00%), Caisse de dépôt et placement du Québec (CDPQ) (12.62%), GIC (11.20%), Alinda Capital Partners of the United States (11.18%), China Investment Corporation (10.00%) and Universities Superannuation Scheme (USS) (10.00%)
USS invests £143m in NATS
Universities Superannuation Scheme Limited (“USS”), one of the largest pension schemes in the United Kingdom, representing academics and related support staff in the higher education sector, today announced that it will acquire a 49.9% non-controlling stake in The Airline Group Limited (“Airline Group”).
The Airline Group is a 41.9% shareholder in NATS Holdings Limited, the holding company for NATS which is a world leader in the provision of air traffic management, including ensuring the safety of aircraft flying in UK airspace and over the eastern North Atlantic. Completion of the transaction remains subject to clearance from the European Commission.
The transaction was arranged by USS Investment Management Ltd, a wholly owned subsidiary of USS and its principal investment manager and advisor, which will manage the investment on USS’s behalf. The investment will be managed by USS Investment Management Ltd’s infrastructure team which substantially reduces the overall cost to USS of investing in infrastructure. As a UK pension fund with a long-term commitment to provide high quality pensions for the higher education sector, USS finds UK infrastructure attractive for its members as it can provide inflation-linked, steady cash flows over a long time horizon, which match USS’s long-term liabilities.
Mike Powell, Head of Private Markets, USS Investment Management Ltd said: “This is another significant investment for the scheme and its members in a high quality infrastructure company. The growth of our infrastructure portfolio by our in house team is a compelling model for the trustee board in meeting its long term commitments to members.”
NATS is the UK’s leading provider of air traffic control services operating since 1962 (originally NATCS). Last year the company handled 2.1 million flights, carrying some 220 million passengers in the UK, which has some of the most complex airspace in the world. This depth of experience, combined with innovation that has driven significant performance improvements over the past decade has led to NATS providing services to 15 UK airports and in more than 30 countries around the world spanning Europe, the Middle East, Asia and America.
Gavin Merchant, Senior Investment Manager, Infrastructure, USS Investment Management Ltd said: “NATS is the global leader in air traffic control and is a strong example of where private and public ownership has worked together to build a national asset of strategic importance. NATS is well positioned to maintain its high level of safety performance and to drive operational improvement through innovation. We look forward to working with the existing shareholders and the management team in delivering these objectives.”
USS buys stake in air traffic control business NATS
The Universities Superannuation Scheme (USS) has bought a nearly 50% stake in the Airline Group, marking further growth in its infrastructure portfolio.
The £143m (€170m) deal will see the UK’s second-largest pension fund acquire a 49.9% stake in the Airline Group and, through the stake, also a 41.9% share in NATS Holdings, the holding company for the air traffic control service.
NATS currently oversees UK and eastern North Atlantic airspace and became a public-private partnership in 2001.
In a statement, the company said interest from the £38.6bn USS was “testament to the strength of the business”, while the fund’s head of private markets Mike Powell saw the deal as a further significant investment in high-quality infrastructure.
Gavin Merchant, senior investment manager for infrastructure at USS Investment Management, said NATS was a good example of where private and public ownership had worked well together to “build a national asset of strategic importance”.
“NATS is well positioned to maintain its high level of safety performance and to drive operational improvement through innovation,” Merchant said. “We look forward to working with the existing shareholders and the management team in delivering these objectives.”
USS acquired its nearly 50% stake in Airline Group from travel companies TUITravel and Thomas Cook Group, with airlines Lufthansa and Virgin Atlantic also agreeing to part with the majority of their respective stakes in the firm.
In a statement, TUI added that, following the sale to USS, it would retain only a 1.8% stake in Airline Group and a further 1.8% of loan notes – down from 13.9% – issued by the group.
Two airlines – British Airways and easyJet – as well as the Monarch Airlines Retirement Benefit Plan, will retain their existing shares of the remaining loan notes.
USS has, over the past year, made a number of notable infrastructure investments, acquiring an airport rail link in Australia and recently buying an 8% stake in Heathrow Airport.