Notes to the financial statements
NOTES TO THE FINANCIAL STATEMENTS
|
1. TUITION FEES AND EDUCATION CONTRACTS(consolidated and university) |
2019/20 | 2018/19 |
|---|---|---|
|
Scottish higher education students |
5,708 | 5,858 |
| Rest of UK students | 1,016 | 1,040 |
| European Union (excluding UK) students | 2,881 | 2,585 |
| Non-European Union students | 2,326 | 2,582 |
| Other fees and discounts | (363) | (337) |
| Education contracts | 2,350 | 2,195 |
| 13,918 | 13,923 | |
| 13,918 | 13,923 | |
|
2. SCOTTISH FUNDING COUNCIL GRANTS(consolidated and university) |
2019/20 | 2018/19 |
|
Recurrent grant |
||
| Teaching | 13,517 | 12,558 |
| Research |
1,108 |
1,174 |
|
Specific grants |
||
| Wider access retention funding | 597 | 597 |
| Other Specific Grants | 64 | 219 |
| Disabled students premium | 57 | 54 |
| Knowledge exchange / University Innovation Fund | 385 | 534 |
| Scottish Drama Training Network | 293 | 148 |
| Capital maintenance grant released | 344 | 359 |
| Other miscellaneous grants | 157 | - |
|
Deferred capital grants released (note16) |
||
|
Land & buildings |
649 |
528 |
|
Equipment |
- | - |
|
17,171 |
16,171 |
|
RESEARCH AND KNOWLEDGE EXCHANGE INCOME |
Consolidated 2019/20 |
Consolidated 2018/19 |
University 2019/20 |
University 2019/20 |
|---|---|---|---|---|
|
UK private sector |
5 | 7 | - | - |
|
UK government and health authorities |
1,729 | 1,497 | 1,729 | 1,484 |
|
UK private sector |
5 | 7 | - | - |
| European funding | 110 | 81 | 108 | |
|
Other grants & contracts |
126 | 236 | 126 | 239 |
|
2,421 |
2,192 | 2,404 | 2,167 |
|
4. OTHER OPERATING INCOME |
Consolidated 2019/20 £000 |
Consolidated 2018/19 £000 |
University 2019/20 £000 |
University 2018/19 £000 |
|---|---|---|---|---|
|
Residences, catering and conferences |
3,872 | 5,250 | 3,602 | 4,884 |
|
Other services rendered |
505 | 829 | 331 | 469 |
|
Sports centre income |
148 | 223 | 148 | 223 |
|
Released from deferred capital grants (note 16) |
- | - | - | - |
|
Other income |
2,007 | 540 | 2,227 | 887 |
| 6,532 | 6,842 | 6,308 | 6,463 |
|
5. INVESTMENT INCOME |
Consolidated 2019/20 £000 |
Consolidated 2018/19 £000 |
University 2019/20 £000 |
University 2019/20 £000 |
|---|---|---|---|---|
|
Investment income on endowments |
- |
- |
- |
- |
|
Other investment income |
56 |
85 |
55 |
84 |
|
Net return on pension scheme |
- | - | - | - |
|
56 |
85 | 55 | 84 | |
|
Other investment income |
56 |
85 |
55 |
84 |
|
6. DONATIONS AND ENDOWMENTS(consolidated and university) |
2019/20 £000 |
2018/19 £000 |
|---|---|---|
|
New endowments |
- | - |
|
Unrestricted donations |
339 |
305 |
|
339 |
305 |
|
7. STAFF COSTS |
Consolidated 2019/20 £000 |
Consolidated 2018/19 £000 |
University 2019/20 £000 |
University 2018/19 £000 |
|---|---|---|---|---|
|
Wages and salaries |
17,300 | 17,855 | 17,236 | 17,710 |
|
Restructuring |
- | 1,101 | - | 1,101 |
|
Social security costs |
1,795 | 1,923 | 1,795 | 1,923 |
|
Movement on USS provision |
(359) |
698 | (359) | 698 |
|
Other pension costs |
4,417 |
5,135 |
4,417 |
5,135 |
| 23,153 | 26,712 | 23,089 | 26,567 |
|
Emoluments of the Principal and Vice-Chancellor |
2019/20 £000 |
2018/19 £000 |
|---|---|---|
|
Professor Petra Wend |
||
|
Salary |
- |
215 |
|
Employers’ pension contributions |
- |
- |
|
In lieu of employers’ pension contribution |
- | 32 |
|
Benefits in kind |
- | 2 |
|
Total |
- |
249 |
|
Dr Richard Butt (Acting Principal from 1 August 2019 to 30 September 2019) |
||
|
Salary |
23 |
- |
|
Employers’ pension contributions |
5 | - |
|
Benefits in kind |
- | - |
|
Total |
28 | - |
|
Sir Paul Grice (from 1 October 2019) |
||
|
Salary |
166 |
- |
|
Employers’ pension contributions |
23 | - |
|
In lieu of employers’ pension contribution |
9 |
- |
|
Benefits in kind |
- | - |
|
Total |
198 |
- |
Sir Paul Grice was the highest paid member of the University Court.
7. STAFF COSTS (continued)
Professor Wend retired on 31 July 2019, and had opted out of the pension scheme. Sir Paul Grice participated inthe Lothian Pension Fund scheme from 1 October 2019 until 30 April 2020. With effect from 1 May 2020, inaccordance with the policy approved by the University Court, an adjustment was made to Sir Paul’s salaryequivalent to employers’ pension contributions foregone. The head of the University’s basic salary is 4.95 timesthe median pay of staff (2018/19 : 5.27 times), where the median pay is calculated on a full-time equivalent basisfor the salaries paid by the University to its staff.
Key management personnel
Key management personnel are those persons having authority and responsibility for planning, directing andcontrolling the activities of the University: this comprises the Senior Leadership Team. The total compensation forthe year ended 31 July 2020 (including any employers’ pension contributions) was £916,919 (year ended 31 July2019, £937,778).
University Court members
The University Court members are the trustees for charitable law purposes and are also the directors of thecompany limited by guarantee for company law purposes. Due to the nature of the University’s operations and the composition of the University Court (being drawn from local public and private sector organisations), it is inevitablethat transactions will take place with organisations in which a member of the University Court may have an interest.All transactions involving organisations in which a member of the University Court may have an interest areconducted at arm’s length, and in accordance with the University’s financial regulations and normal procurementprocedures. University Court members receive no remuneration in respect of their duties as members of theUniversity Court. A number of members of the University Court, including the Principal and Vice-Chancellor,receive a salary in respect of their employment with the University. Detail of such remuneration is set out below.
| University Court members |
2019/20 £000 |
2018/19 (restated) £000 |
|---|---|---|
|
Directors’ emoluments (including pension contributions) |
||
|
Fees for services as members of University Court |
- | - |
|
Emoluments (i.e. salaries as members of staff) |
416 |
467 |
|
Contributions paid to pension schemes |
75 |
38 |
|
Benefits in kind |
- | 2 |
|
Total |
491 |
507 |
These figures relate to 7 members of staff, including the Principal (2018/19:6)
The number of members of staff, including the Principal, who received remuneration (including benefits andexcluding pension contributions) in each of the following ranges was:-
| Members |
2019/20 |
2018/19 |
|---|---|---|
| Number | Number | |
|
Senior post holders |
||
|
£100,001 to £110,000 |
2 | 2 |
|
£110,001 to £120,000 |
- | 1 |
|
£120,001 to £130,000 |
1 | - |
|
£170,001 to £180,000 |
1 | - |
|
£240,001 to £250,000 |
- | 1 |
No compensation payments were made to senior post holders in respect loss of office (2018/19: Nil).
| Members |
2019/20 |
2018/19 |
|---|---|---|
|
Average full time equivalent (FTE) staff numbers by major category: |
FTE number |
FTE number |
|
(Consolidated and university) |
||
|
Academic schools |
182 |
194 |
| Academic services | 44 | 43 |
|
Research grants & contracts |
37 |
33 |
|
Residences, catering & conferences |
16 | 26 |
|
Premises |
23 | 21 |
|
Administration & central services |
108 | 108 |
| 410 | 425 |
|
INTEREST PAYABLE |
2019/20 £000 |
2018/19 £000 |
2019/20 £000 |
2018/19 £000 |
|---|---|---|---|---|
| Low Interest |
1,187 |
1,246 |
1,187 |
1,246 |
|
Finance lease interest |
- | - | - | - |
|
Net charge on pension scheme |
361 |
186 |
361 |
186 |
|
1,548 |
1,432 |
1,548 |
1,432 |
|
|
9. ANALYSIS OF TOTAL EXPENDITURE BY ACTIVITY |
Consolidated 2019/20 £000 |
Consolidated 2018/19 £000 |
University 2019/20 £000 |
University 2018/19 £000 |
|
Academic schools |
13,528 | 14,197 | 13,887 | 14,197 |
|
Academic services |
4,271 |
5,177 | 4,271 | 5,177 |
|
Research grants & contracts |
1,683 | 1,900 | 1,665 | 1,884 |
|
Other services rendered |
680 | 508 | 507 | 236 |
|
Residences, catering and conferences |
2,209 | 3,110 | 2,172 | 3,002 |
|
Premises |
7,514 | 8,096 | 7,514 | 8,096 |
|
Administration & central services |
9,657 | 7,845 | 9,284 | 7,836 |
|
Other expenses |
1,374 | 4,729 | 1,374 | 4,729 |
|
Total per income and expenditure account |
40,916 | 45,562 | 40,674 | 45,157 |
|
10. TAXATION (consolidated and university) |
- | - |
2019/20 £000 |
2018/19 £000 |
|
UK Corporation Tax payable |
- | - | ||
|
11. OTHER OPERATING EXPENSES |
Consolidated 2019/20 £000 |
Consolidated 2018/19 £000 |
University 2019/20 £000 |
University 2018/19 £000 |
|
External auditors – audit fees |
112 |
71 |
100 |
66 |
|
External auditors – non-audit fees |
2 | - | - | - |
|
Internal audit |
31 |
44 |
31 |
44 |
|
Grants to Students Union |
252 | 240 | 252 | 240 |
|
Other expenses |
10,504 |
11,328 |
10,340 |
11,073 |
|
|
10,901 |
11,683 |
10,723 |
11,423 |
|
12. TANGIBLE ASSETS(Consolidated and University) Cost or valuation: |
Freeholdland &buildings Owned £000 |
Fixtures, fittings & equipment Owned £000 |
Fixtures, fittings & equipment Held underfinance leases £000 |
TOTAL £000 |
|
At 1 August 2019 |
129,907 |
9,704 |
1,271 |
140,882 |
|
Disposals at cost |
- | (14) | - |
(14) |
|
Additions at cost |
- |
940 |
- |
940 |
|
Revaluation of buildings |
(2,759) | - | - | (2,759) |
|
At 31 July 2020 |
127,148 |
10,630 | 1,271 | 139,049 |
|
Depreciation: |
||||
|
At 1 August 2019 |
3,462 |
8,188 |
1,271 |
12,921 |
|
Written off on disposals |
- | (14) | - | (14) |
|
Written back due to revaluation |
(7,927) | - | - | (7,927) |
|
Provided during the year |
4,465 | 849 | - | 5,314 |
|
At 31 July 2020 |
- | 9,023 | 1,271 |
10,294 |
|
Net book amount at 31 July 2020 |
127,148 | 1,607 | - | 128,755 |
|
Net book amount at 1 August 2019 |
126,445 | 1,516 | - | 127,961 |
| Analysis of net book amount at 31July 2020 | ||||
|
Financed by capital grant |
7,558 | - | - | 7,558 |
|
Other |
119,590 | 1,607 | - | 121,197 |
| 127,148 | 1,607 | - | 128,755 | |
|
Provided during the year |
4,465 | 849 | - | 5,314 |
|
At 31 July 2020 |
- | 9,023 | 1,271 |
10,294 |
|
Net book amount at 31 July 2020 |
127,148 | 1,607 | - | 128,755 |
The valuation of the academic estate was carried out at 31 July 2020 by Gerald Eve, Chartered Surveyors.The basis of the valuation, which was carried out in accordance with guidelines issued by the Royal Institutionof Chartered Surveyors, is depreciated replacement cost. The student accommodation was valued as at 31July 2020, also by Gerald Eve LLP. This valuation was prepared in accordance with the requirements of theRICS Valuation - Global Standards (July 2017 edition) and Financial Reporting Standard 102 and the 2019Statement of Recommended Practice 'Accounting for Further and Higher Education'. The valuation wasundertaken on a Fair Value basis, equated to Market Value on the assumption of a continuation of the existinguse. The valuations are subject to a material valuation uncertainty, arising as a result of the COVID-19pandemic. Further detail is provided in paragraph (N) in the Statement of Principal Accounting Policies.
Barclays Bank plc holds a standard security, dated 17 December 2014, over the student accommodationsituated on the University campus.
The University has a modest collection of works of art and other items of historical interest. No value isincluded within fixed assets in respect of this collection as it is not considered to be material.
|
13. INVESTMENTS Subsidiary Undertaking Name of undertaking |
Country ofincorporationandregistration | Description of shares held |
Proportion ofnominal value of shares held % |
Cost at 1August 2019 &31 July 2020 £ |
|---|---|---|---|---|
|
Enterprises Ltd Scotland |
Scotland | Ordinary £1 shares | 100 | 100 |
| 100 |
Enterprises Limited undertakes activities which, for legal or commercial reasons, are more appropriatelychannelled through a separate limited company. These activities include vacation letting, conferences andrendering of services (other than research) for a variety of commercial and other organisations. The resultsof Enterprises Limited have been consolidated into the group financial statements.
|
14. TRADE AND OTHER RECEIVABLES |
Consolidated |
Consolidated |
University | University |
|---|---|---|---|---|
|
Amounts falling due within one year: |
2020 | 2019 | 2020 | 2019 |
|
£000 |
£000 |
£000 |
£000 |
|
|
Trade debtors |
246 |
858 |
243 |
677 |
|
Prepayments and accrued income |
2,276 |
851 |
2,276 |
784 |
|
Amounts due from subsidiary company |
- | - |
463 |
364 |
|
2,522 |
1,709 |
2,982 |
1,825 |
|
|
15. CREDITORS: AMOUNTS FALLINGDUE WITHIN ONE YEAR |
Consolidated 2020 |
Consolidated 2019 |
University 2020 |
University 2019 |
|
Secured loans (see note 16) |
1,492 |
1,492 |
1,492 |
1,492 |
|
Trade creditors |
1,197 | 1,886 | 1,192 | 1,885 |
|
Social security and other taxation payable |
494 | 568 | 494 | 568 |
|
Accruals and deferred income |
4,058 |
4,238 |
4,003 |
4,027 |
|
Unsecured loans |
31 |
35 |
31 |
35 |
|
7,272 |
8,219 |
7,212 |
8,007 |
The secured long-term loan facility with Barclays Bank plc is £29.1 million, and has a final maturity date of 17December 2024. The loan is secured over part of the campus site at Musselburgh. The University has enteredinto a fixed-rate arrangement in order to protect itself against any significant fluctuations in interest rates. Theterms of this arrangement are commercially confidential.
|
Pensions£’000 |
Obligation tofund deficit onUSS Pension | Pensionenhancements | Defined benefitobligationsLGPS | Totalpensionsprovisions |
|---|---|---|---|---|
|
£’000 |
£’000 |
£’000 |
£’000 |
|
|
At 1 August 2019 |
1,080 |
3,011 |
15,325 |
15,325 |
|
Utilised in year |
(28) |
(216) |
- |
(244) |
|
Transfer (to)/from income &expenditure account |
(309) |
51 |
15,659 |
15,401 |
|
At 31 July 2020 |
743 |
2,846 | 30,984 | 34,573 |
The University has a liability to fund the past deficit on the Universities Superannuation Scheme (USS). Thisobligation arises from the contractual obligation with the pension scheme for total payments relating to benefitsarising from past performance. The University has assessed future staff levels within the USS scheme andsalary inflation over the period of the contractual obligation in assessing the value of this provision. Furtherinformation is provided in note 21(C).
The University also has a liability for pension enhancements payable to former members of staff who havetaken early retirement in prior years. An actuarial valuation of the amount of this liability was carried out byHymans Robertson, Actuaries, at 31 July 2020, on the basis of valuation prescribed by FRS 102, and usingthe same set of assumptions as are set out in note 21 in relation to the valuation of the Local GovernmentPension Scheme.
Detail of the movement in the Local Government Pension Scheme (LGPS) provision is set out in note 21(A).
|
18. ENDOWMENT RESERVES |
Consolidated and University Unrestricted £000 |
Consolidated and University Restricted Expendable £000 |
Consolidated and University Restricted Permanent £000 |
Consolidated and University Restricted Total £000 |
Consolidated and University Total £000 |
|---|---|---|---|---|---|
|
Balance at 1 August 2019 |
- |
595 |
47 |
642 |
642 |
|
Income for year |
- |
339 |
- | 339 | 339 |
| Expenditure for year | - | (160) | - | (160) | (160) |
|
At 31 July 2020 |
- |
774 |
47 |
821 |
821 |
|
Represented by: |
|||||
|
Capital value |
- | - | 35 | 35 | 35 |
|
Accumulated income |
- | 774 | 12 | 786 | 786 |
| - |
774 |
47 |
821 |
821 |
|
|
19. REVALUATION RESERVE |
- |
- |
- |
Consolidated and University 2020 £000 |
Consolidated and University 2019 £000 |
|
At 1 August |
|
|
61,412 |
31,132 |
|
|
Revaluation Gains |
|
|
5,168 |
30,614 |
|
|
Release to general reserve - (334) |
|
|
- |
(334) |
|
|
At 31 July |
|
|
66,580 |
61,412 |
|
|
20. CONSOLIDATED RECONCILIATION OF NET DEBT |
- |
- |
- |
Consolidated and University 2020 £000 |
Consolidated and University 2019 £000 |
|
Consolidatedand University |
|
|
£000 |
||
|
Net debt at 1 August 2019 |
|
|
22,656 |
||
|
Increase in cash and bank balances |
|
|
(690) |
||
|
Secured loans repaid |
|
|
(1,491) |
- |
|
|
Unsecured loans repaid |
|
|
(31) |
|
|
|
Net debt at 31 July 2020 |
|
|
20,444 |
|
|
|
Analysis of net debt |
- |
- |
- |
Consolidated andUniversity 2022 £000 |
Consolidated andUniversity 2019 £000 |
|
Cash at bank and in hand |
|
|
(8,772) |
(8,082) |
|
|
Borrowings: amounts falling due within one year |
|
|
|
|
|
|
Secured loans |
|
|
1,492 |
1,492 |
|
|
Unsecured loans |
|
|
31 |
35 |
|
|
|
|
1,523 |
1,527 |
||
|
Borrowings: amounts falling due after more than one year |
|
|
|
|
|
|
Secured loans |
|
|
27,595 |
29,086 |
|
|
Unsecured loans |
|
|
98 |
125 |
|
|
|
|
27,693 |
29,211 |
||
|
Net debt as at 31 July |
|
|
20,444 |
22,656 |
|
|
|
|
1,523 |
1,527 |
21. PENSIONS AND SIMILAR OBLIGATIONS
The University’s employees belong to three principal pension schemes, the Scottish Teachers PensionScheme (STPS), the Local Government Pension Scheme (LGPS) and the Universities SuperannuationScheme (USS). The total pension cost for the year was £4,058,000 (2018/19: £5,833,000).
| PENSIONS AND SIMILAR OBLIGATIONS |
Consolidated and University Year ended31 July 2020 £000 |
Consolidated and University Year ended31 July 2019 £000 |
|---|---|---|
| The total pension charge is analysed as follows: | ||
|
Lothian Pension Fund (LGPS) |
2,243 | 3,211 |
|
Scottish Teachers’ Pension Scheme |
1,823 | 1,642 |
|
Universities Superannuation Scheme |
(8) | 980 |
|
4,058 |
5,833 |
Estimated employers’ pension contributions for the year to 31 July 2021 are £3,898,000.
A) Local Government Pension Scheme (LGPS)
The Lothian Pension Fund is a funded multi-employer defined benefit scheme, with the assets held in aseparate trustee-administered fund to meet long-term pension liabilities to past and present employees. Thetrustees of the fund are required to act in the best interests of the fund’s beneficiaries. The appointment oftrustees to the fund is determined by the scheme’s trust documentation. The trustees are responsible forsetting the investment strategy for the scheme after consultation with professional advisors.
The following information is based upon a full actuarial valuation of the fund at 31 March 2017 updated to 31July 2020 by a qualified independent actuary, Hymans Robertson LLP.
|
Assumptions at |
31 July 2020 | 31 July 2019 | 31 July 2018 |
|---|---|---|---|
|
Pension increase rate |
2.2% | 2.4% | 2.4% |
|
Salary increase rate |
3.9% | 4.1% | 4.1% |
|
Discount rate |
1.4% | 2.1% | 2.8% |
The fund is valued every three years by professionally qualified independent actuaries using the projectedunit credit method, the rates of contribution payable being determined by the trustees on the advice of theactuaries. In the intervening years, the scheme actuary reviews the progress of the scheme. The actuary hasindicated that the resources of the scheme are likely, in the normal course of events, to be sufficient to meetthe liabilities as they fall due at the level specified by the scheme regulations. The currently agreed employer’scontribution rate for the University increased from 19.5% to 20.0% with effect from 1 April 2020..
The assumptions used by the actuary are the best estimates chosen from a range of possible actuarialassumptions which, due to the timescales covered, may not necessarily be borne out in practice. The currentmortality assumptions, which are consistent with those used for the latest formal funding valuation, includesufficient allowance for future improvements in mortality rates. The assumed life expectations on retirementat age 65 are:-
| Current pensioners |
31 July 2020 No. of years |
31 July 2019 No. of years |
|---|---|---|
|
Males |
21.7 | 21.7 |
|
Females |
24.3 | 24.3 |
|
Future pensioners |
||
|
Males |
24.7 | 24.7 |
|
Females |
27.5 | 27.5 |
21. PENSIONS AND SIMILAR OBLIGATIONS (continued)
A) Local Government Pension Scheme (LGPS) (continued)
Analysis of the amount shown in the balance sheet
| PENSIONS AND SIMILAR OBLIGATIONS |
Value at31 July2020 £000 |
Value at31 July2019 £000 |
Value at31 July2018 £000 |
Value at31 July2017 £000 |
Value at31 July2016 £000 |
|---|---|---|---|---|---|
|
Estimated employer assets (A) |
60,469 | 63,223 | 57,343 | 57,322 | 50,644 |
|
Present value of scheme liabilities |
(90,773) | (77,851) | (62,495) | (68,492) | (63,303) |
|
Present value of unfunded liabilities |
(680) | (697) | (671) | (701) | (769) |
|
Total value of liabilities (B) |
(91,453) | (78,548) | (63,166) | (69,193) |
(64,072) |
|
Net pension liability (A) – (B) |
(30,984) | (15,325) | (5,823) | (11,871) | (13,428) |
| Analysis of movements in the present value of the scheme liabilities | - | - | - |
31 July 2020 £000 |
31 July 2019 £000 |
|
Opening defined benefit obligation |
78,548 |
63,166 | |||
|
Current service cost |
3,018 | 2,276 | |||
|
Interest cost on defined benefit obligation |
1,672 | 1,789 | |||
|
Contributions by members |
429 | 437 | |||
|
Actuarial losses / (gains) |
9,071 | 11,019 | |||
|
Past service costs |
21 | 1,074 | |||
|
Unfunded benefits paid |
(47) | (49) | |||
|
Benefits paid |
(1,259) | (1,164) | |||
|
Closing defined benefit obligation |
91,453 | 78,548 |
|
Analysis of movement in the market value of the scheme assets |
31 July 2020 £000 |
31 July 2019 £000 |
|---|---|---|
|
Opening fair value of employer assets |
63,223 | 57,343 |
|
Expected return on assets |
(4,652) | 3,660 |
|
Contributions by members |
429 | 437 |
|
Contributions by employer |
1,394 | 1,334 |
|
Contributions in respect of unfunded benefits |
47 | 49 |
|
Interest income on plan assets |
1,334 | 1,613 |
|
Unfunded benefits paid |
(47) | (49) |
|
Benefits paid |
(1,259) | (1,164) |
|
Closing fair value of employer assets |
60,469 | 63,223 |
The significant increase in the net pension liability at 31 July 2020 compared with the position at 31 July 2019is in line with the experience of all LGPS employers. There are two main reasons for this increase.
- For all LGPS funds, investment returns have been extremely volatile over the latter part of the period asa result of the COVID-19 pandemic, and whilst for many funds the significant asset losses experiencedin the first quarter of 2020 have been partially recovered in the period to the end of July, closing assetvalues still show a reduction from the 2019 position.
- The default financial assumptions at 31 July 2020 result in a significantly lower net discount ratecompared to 31 July 2019, mainly arising from a fall in AA corporate bond yields. This serves to increasesignificantly the value placed on past service obligations.
A) Local Government Pension Scheme (LGPS) (continued)
Guaranteed minimum pension (GMP) was accrued by members of the Local Government Pension Scheme(LGPS) between 6 April 1978 and 5 April 1997. The value of GMP is inherently unequal between males andfemales for a number of reasons, including a higher retirement age for men and GMP accruing at a faster ratefor women. However overall equality of benefits was achieved for public service schemes through theinteraction between scheme pensions and the Second State Pension. The introduction of the new SingleState Pension in April 2016 disrupted this arrangement and brought uncertainty over the ongoing indexationof GMPs, which could lead to inequalities between men and women’s benefits. As an interim solution to avoidthis problem, GMP rules were changed so that the responsibility for ensuring GMPs kept pace with inflationpassed in full to pension schemes themselves for members reaching state pension age between 6 April 2016and 5 April 2021. This new responsibility led to increased costs for schemes (including the LGPS) and hencefor scheme employers. In calculating the level of provision for inclusion in the financial statements at 31 July2019, the fund’s actuary carried out calculations in order to estimate the impact that the GMP indexationchanges would have on the liabilities of University for financial reporting purposes. Thisincreased liability was reflected in the provision shown in the financial statements at 31 July 2019 as a pastservice cost, and this element has been rolled forward and is included in the provision as at 31 July 2020 onthe same basis.
In April 2015, wholesale changes were made to the Local Government Pension Scheme in Scotland to reformthe scheme’s benefits structure. These changes were implemented as part of wider reforms to public sectorpensions introduced by the UK Government’s Public Service Pensions Act 2013. In the LGPS, these changesincluded moving benefit accrual from a final salary to a career average basis, and linking members’ normalretirement age to their state pension age. Transitional provisions were introduced for members who werewithin 10 years of normal retirement age in 2012. These transitional protection arrangements applied acrosspublic service pension schemes where older members were permitted to remain in their pre-2015 schemes,In the LGPS all members were moved onto the new arrangements from 1 April 2015. However those within10 years of their normal pension age on 1 April 2012 were protected through a statutory ‘underpin’. Thisunderpin protection provides that additional checks are undertaken for qualifying members to ensure that thecareer average pension payable under the reformed LGPS is at least at high as the member would have beenentitled to receive under the final salary scheme. Where it is not as high, scheme regulations provide that anaddition must be applied to the member’s career average pension to make up the shortfall. In the ‘McCloud’and ‘Sargeant’ court cases (which related to the judicial and firefighters’ pension schemes respectively), theCourt of Appeal found that the transitional protection arrangements directly discriminated against youngermembers in those schemes. In July 2019, the UK government confirmed its view that these rulings hadimplications for all the main public service pension schemes, including the LGPS, and that the discriminationwould require to be addressed in all the relevant schemes, regardless of whether members had lodged a legalclaim. In the 2019 financial statements, the University included an additional provision to reflect the potentialadditional costs arising out of these court decisions. Subsequently, the Scottish Public Pensions Agency(SPPA) has issued proposals to amend the LGPS underpin to address the age discrimination included inscheme reform. The proposal is that only members who were active in the LGPS at both 31 March 2013 and1 April 2015 would be eligible for the benefit underpin. The impact of these restricted eligibility criteria is thatthe adjustment applied to liabilities will be lower than previously expected, and this updated position has beenreflected in the calculation of the provision as at 31 July 2020. In calculating the amount of the provision at 31July 2020, the assumptions used in calculating the McCloud element of the liability have been refined basedon the most recent data available. This has led to an increase in the liability and the expense of £275,000.
B) Scottish Teachers’ Pension Scheme (STPS)
The Scottish Teachers’ Pension Scheme is an unfunded statutory public service pension scheme with benefitsunderwritten by the UK Government. The scheme is financed by payments from employers and from thosecurrent employees who are members of the scheme and who pay contributions at progressively highermarginal rates based on pensionable pay, as specified in the regulations. The rate of employer contributionsis set with reference to a funding valuation undertaken by the scheme actuary. The last four-yearly valuationwas undertaken as at 31 March 2016. This valuation used the Projected Unit Methodology, and was carriedout in accordance with the Public Service Pensions (Valuations and Employer Cost Cap) Directions 2014 (asamended). The valuation informed an increase in the employer contribution rate from 17.2% to 23.0% ofpensionable pay from September 2019 and an anticipated yield of 9.4% from employee contributions. Thenotional fund at 31 March 2016 amounted to £21.5 billion, and total scheme liabilities for service amounted to£22.8 billion, giving a notional past service deficit of £1.3 billion, which is being repaid by a supplementaryrate of 4.3% of employers’ pension contributions over a 15-year period from 1 April 2019. This contribution isincluded in the 23.0% employers’ contribution rate. As the scheme is unfunded there can be no deficit orsurplus to distribute on the wind-up of the scheme or withdrawal from the scheme.
Work on the most recent valuation was suspended by the UK Government pending the decision from theCourt of Appeal (McCloud (Judiciary scheme)/Sargeant (Firefighters’ Scheme) cases) that held that thetransitional protections provided as part of the 2015 reforms unlawfully discriminated on the grounds of age.The cost cap will be reconsidered once the final decision on a remedy and how this affects the ScottishTeachers’ Pension Scheme is known and its impact fully assessed in relation to any additional costs to thescheme.
The scheme is an unfunded multi-employer defined benefit scheme. The University is unable to identify itsshare of the underlying assets and liabilities of the scheme. Accordingly, the University has accounted for itscontributions as if it were a defined contribution scheme. The University has no obligation for other employers’obligations to the multi-employer scheme.
C) Universities Superannuation Scheme (USS)
The University participates in the Universities Superannuation Scheme, which is a hybrid pension scheme,providing defined benefits (for all members), as well as defined contribution benefits. The assets of thescheme are held in a separate trustee-administered fund.
Because of the mutual nature of the scheme, the scheme’s assets are not attributed to individual institutionsand a scheme-wide contribution rate is set. The University is therefore exposed to actuarial risks associatedwith other institutions’ employees and is unable to identify its share of the underlying assets and liabilities ofthe scheme on a consistent and reasonable basis. As required by Section 28 of FRS 102 “Employee benefits”,the University therefore accounts for the scheme as if it were a wholly defined contribution scheme. As aresult, the amount charged to the consolidated Statement of Comprehensive Income and Expenditure represents the contributions payable to the scheme in respect of the accounting period.
The University has entered into an agreement (the Recovery Plan) that determines how each employer withinthe scheme will fund the overall deficit). In accordance with the requirements of the SORP, the Universityrecognises a liability for the contributions payable that arise from the agreement (to the extent that they relateto the deficit), and therefore an expense is recognised. The latest available complete actuarial valuation ofthe Retirement Income Builder is at 31 March 2018 (the valuation date), which was carried out using theprojected unit method. A valuation as at 31 March 2020 is underway but not yet complete.
Since the University cannot identify its share of the assets and liabilities in the Retirement Income Buildersection of the scheme, the following disclosures reflect those relevant for the section as a whole.
The 2018 valuation was the fifth valuation for the scheme under the scheme-specific funding regimeintroduced by the Pensions Act 2004, which requires schemes to adopt a statutory funding objective, whichis to have sufficient and appropriate assets to cover their technical provisions. At the valuation date, the valueof the assets of the scheme was £63.7 billion and the value of the scheme’s technical provisions was £67.3billion indicating a shortfall of £3.6 billion and a funding ratio of 95%.
The key financial assumptions used in the 2018 valuation are described below.
|
Pension increases (CPI) |
Term dependent rates in line with the difference between the FixedInterest and Index Linked yield curves, less 1.3% p.a. |
|---|---|
|
Discount rate (forward rates) |
Years 1-10: CPI + 0.14% reducing linearly to CPI – 0.73%Years 11-20: CPI + 2.52% reducing linearly to CPI + 1.55 by year 21Years 21 +: CPI + 1.55% |
C) Universities Superannuation Scheme (USS) (continued)
The main demographic assumption used relates to the mortality assumptions. The assumptions are basedon analysis of the scheme’s experience carried out as part of the 2018 actuarial valuation. The mortalityassumptions used in these figures are as follows:-
|
Mortality base table |
Pre-retirement: 71% of AMC00 (duration 0) for males and 112% of AFC00 (duration 0)for females |
|---|---|
|
Post retirement: 97.6% of SAPS S1NMA “light” for males and 102.7% of RFV00 forfemales |
|
|
Future improvements to mortality |
CMI_2017 with a smoothing parameter of 8.5 and a long termimprovement rate of 1.8% p.a. for males and 1.6% p.a. for females |
The current life expectancies on retirement at age 65 are:
| retirement at age 65 are |
2018valuation |
2017valuation |
|---|---|---|
|
Males currently aged 65 (years) |
24.4 24.6 | 24.6 |
|
Females currently aged 65 (years) |
25.9 | 26.1 |
|
Males currently aged 45 (years) |
26.3 | 26.6 |
|
Females currently aged 45 (years) |
27.7 | 27.9 |
A new deficit recovery plan was put in place as part of the 2018 valuation, which requires payment of 2% ofsalaries over the period 1 October 2019 to 30 September 2021 at which point the rate will increase to 6%.The 2020 deficit recovery liability reflects this plan. The liability figures have been produced using the followingassumptions:
| % | 2020 | 2019 |
|---|---|---|
|
Discount rate |
0.73% | 2.44% |
|
Pension increases (CPI) |
2.00% | 2.11% |
D) Other pension liabilities
The University has a liability for pension enhancements payable to former members of staff who have takenearly retirement in prior years. An actuarial valuation of the amount of this liability was carried out by HymansRobertson, Actuaries at 31 July 2020 on the basis of valuation prescribed by FRS 102. The total provision inrespect of this liability is £2.846 million (2019: £3.011 million).
22. POST BALANCE SHEET EVENT
In September 2020, the Trustee of the USS Pension Scheme (USS) launched a consultation with UniversitiesUK on key aspects of the scheme's 2020 valuation. The scope of this exercise covers a wide range of potentialoutcomes - reflecting issues still to be resolved on employer support as well as uncertainties for the highereducation sector and financial markets in general - but, based on the proposals put forward, the Trusteeshave indicated that the fund's deficit at 31 March 2020 could range from between £9.8bn and £17.9bn. Thiswould represent a significant deterioration from the £3.6bn deficit established under the 2018 valuation (and against which the current recovery plan is set) and a return to the levels of shortfall experienced under theprevious 2017 valuation (£11.8bn).
At this stage no outcome has been agreed and the USS Trustee has until 30 June 2021 to conclude thevaluation. As an early indication of the scale of impact, it has been estimated that the cost of continuing tooffer current benefits in this context could reach between 40.8% to 67.9% of payroll. However, this range ispurely an illustration and is before any other measures are considered to reduce the deficit. This matter is stillbeing widely debated across the sector and by the Trustee of the Pension Scheme. For the 2019-20 financialyear, however, this is considered a non-adjusting event.
23. FINANCIAL INSTRUMENTS
The University applies the provisions of Sections 11 and 12 of FRS 102 in full. The University’s financial.assets and liabilities all meet the criteria for basic financial instruments prescribed within FRS 102 – Section11.8.
24. HARDSHIP AND CHILDCARE FUNDS
| HARDSHIP AND CHILDCARE FUNDS |
2019/20 £000 |
2018/19 £000 |
|---|---|---|
|
HARDSHIP FUND (undergraduate and postgraduate) |
||
|
Balance at 1 August |
- | - |
|
Amounts received from Student Awards Agency for Scotland |
261 | 232 |
|
Amount vired (to) /from Childcare Fund |
53 | 50 |
|
314 |
282 | |
|
Disbursed to students |
(313) | (278) |
| Other costs | (1) | (3) |
|
Refunded to Student Awards Agency for Scotland |
- | (1) |
|
Balance unspent at 31 July |
- | - |
|
CHILDCARE FUND |
||
|
Balance at 1 August |
- | - |
|
Amounts received from Student Awards Agency for Scotland |
149 | 140 |
| 149 | 140 | |
|
Disbursed to students |
(96) | (90) |
|
Amount vired (to) / from Hardship Fund |
(53) | (50) |
|
Refunded to Student Awards Agency for Scotland |
- | - |
|
Balance unspent at 31 July |
- | - |
Amounts received from the Student Awards Agency for Scotland are available solely for students; theUniversity acts only as paying agent. The grants and related disbursements are therefore excluded from theStatement of Comprehensive Income and Expenditure.
