Does the Universities Superannuation Scheme Provide a Model of Reciprocity Between Generations?

This article makes the case that, as an open, ongoing defined benefit (DB) pension scheme, the Universities Superannuation Scheme (USS) once provided a model of reciprocity between generations but no longer does. It begins with an account of the defined contribution (DC) scheme which preceded USS and its investment risk and relatively low pension income that USS was created to rectify. It shows how the funding, investment, and valuation of USS during its first two decades provided a simple and sustainable model of reciprocity, involving the pooling among generations of the investment risk of growth assets. USS’s subsequent shift, however, out of growth assets and into bonds, and the rise in contributions to pay for this shift, have led to an unfair imposition of the cost of securing past pension promises upon current and future generations. This has occurred even though such a shift has been advocated on grounds of intergenerational fairness. A closure of DB and a move back to 100% DC would exacerbate the inequality between generations. JEL codes: D63, G22, J14, J32