Don’t make the teachers pay


uss3I am  sad to read that “academics face a big rise in their pension payments”. That’s the headline in the FT and it may be true.

Another set of spurious numbers?

The University Superannuation Scheme has completed it’s three yearly (triennial) valuation and concluded that though the deficit of the scheme has fallen from £5.4bn to £5.1bn over the past three years, that’s because it got lucky on its investments. The trustees conclude that they can’t expect to get lucky again, that future investment returns are likely to be lower than those baked into current assumptions so there’s going to have to be a whole lot more paid in to the scheme.

I am in the fortunate position of not being an “expert”, so I can ask some non-expert questions about this.

The first is why the trustees reckon the deficit is c£5bn, while the accounting deficit, which Frank Field is het up about – is over £17bn? And why is the deficit now £5bn and not the recently reported £10bn (recent consultation document)


I think I know the answer to this, it’s because the accounting deficit assumes the scheme is invested in bonds (which it isn’t) and assumes a return on assets which will be lower than can reasonably be assumed, using the scheme’s current asset allocation  (not bonds but growth seeking assets likely to perform better in the wrong term).

Either way, is the £5bn deficit any more real than the £17bn deficit, mightn’t there be another view of the assets (as stated in recent USS strategy docs) that has the scheme in surplus (certainly what happens if you use the FABI methodology).

Bottom line is that the deficit is what you want it to be and depends on the level of “prudence” you want to apply to what is actually going on. If you applied the scheme return of 13%pa over the past five years as your future discount rate, I expect the USS could pay off the National Debt by 2050.

Have the trustees been listening to Chicken Licken?

The second is why the trustees have got into a blue funk about their future investment returns. Are they (a) planning to switch the fund into bonds, surrendering the prospect of future growth (as the Royal Mail Pension Scheme has so disastrously done), or (b) assumed that the current yields on real assets is likely to fall (the UK stock market currently provides a dividend yield of 3.5% – a number that has hardly changed in the past 30 years.   Or (c) something different from either of these things.

I don’t know what the trustee’s pessimism is all about. Are they assuming the worst from Brexit or do they have a crystal ball that sees one of those North Korean rockets spraying radiation over the western world. I hear the clucking of Chicken Licken – is the sky actually about to fall on our heads? Once again, I do not type as an actuary, I type as a weirded out member of the public.

My feeling is that the USS trustees are under pressure to adopt a more conservative investment strategy and to be more pessimistic about the returns they’ll get (a+b). What the motivation for this is, I don’t know, but I don’t suspect that it’s being driven by the members. If there is a (c) – I suspect it’s “c” for control, something employers feel they need to have absolutely.

Why should the members pay more?

If there’s one statement in the FT article that seems to carry the weight of common sense, it is that of Sally Hunt, general secretary of the University and College Union

 “The USS is a healthy scheme which makes more money than it pays out and is forecast to continue to do so,”

Frank Field, as he fulminates over the iniquity of the USS’ supposed deficit, should take a step back and listen to what Sally is saying. She is not saying her members are disgusted by the running of the scheme, she is not saying they are worried by the supposed deficit, she is saying that she, as the member’s representative, is perfectly happy with the scheme.

The University teachers and researchers and everyone else in the USS scheme do not want to pay more into the scheme (according to Sally Hunt)

 any move by USS to simply increase costs or reduce benefits for members, who have already seen their pensions cut twice since 2011, will risk leaving it far behind the alternative Teachers’ Pension Scheme and will be opposed with all means at our disposal

I fear the worst when I read this statement from the employer’s body, University UK

“More than ever, universities believe that achieving long-term stability of pension provision is critical and that cost and risk must be better controlled.”

The Universities want to be considered businesses, part and parcel of this is putting pensions in lock-down. They may not be able to “freeze the scheme” as they could if they were a private sector employer. They want control – that is all they want.

They now appear to be pursuing a tactic of starving the members out, requiring an ever higher contribution rate from members which will break them. That may give them control of the “chicken-licken pension risk”, but at what price?

Let the teachers have their say

The long-term stability of the University is based on the goodwill of its staff, As Sally Hunt says, there is no talk of closing the unfunded teachers pension scheme run by the Government. University staff can properly ask just why it is in the long-term interest of anyone to apply the short-term view of the scheme implicit in the phoney deficits being touted by employers.

I speak not as a member of the scheme, nor as an actuarial or investment expert, but as an ordinary person who is seeing confidence in the USS being wrecked. I do not fully understand the numbers, or the motivations of those who are demanding teachers pay more, but I am quite sure that it is the members and their representatives who s have most say in this. After all it is their retirements which this is about.

chicken licken



Since writing this blog the disclosure of information has moved on

Sheffield University has done a great job putting all the documents surrounding the 2017 valuation in one place.



Something of a coup for a small group who have been pressing for disclosure – all this is now in the public domain.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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7 Responses to Don’t make the teachers pay

  1. Gerry Flynn says:

    Look out for the following headlines in the right wing press regarding the USS, “Fat Cats, Left wing teachers, Gold Plated Pensions, Elites, Job losses,children’s future education, Greedy”.

  2. Con Keating says:

    Whereasthe story line should read. Dedicated university teachers are being exploited. The USS scheme is now offering them lousy returns on their invested contributions, and if these lousy returns are exceeded in markets, then the employer sponsors will keep those gains.

  3. ancientllm says:

    Henry, when I was doing some work for Professional Pensions in the spring, I was surprised at the returns people were claiming on their investments in Bonds. So I checked. And last year the VALUE of an investment in Bonds increased by on average by some 25%. So it seems the canny move in 2016 would have been to sell up and buy Bonds. By then returning to real investments this summer an 80% funded scheme could have changed itself into approaching fully funded (or grossly over funded…). Or am I missing something?

    Enjoy the weekend

    Robin Rowles

    • henry tapper says:

      And the “top-performing asset class last year” was index-linked gilts which delivered a staggering 25% return. Of course if you are relying on the logic of picking next year’s winners to win again next year, I can give you some good odds on the Gold Cup and Grand National winners of 2018. The fundamentals of investment remain the same, bonds are debt instruments – suitable for meeting short term liabilities, growth assets have different time horizons, we need to establish what the USS time horizons are – in this and the next blog – I insist these horizons are ultra-long!

  4. DaveC says:

    Isn’t a core investing axiom that things either go up or down, but not sideways in value vs time?

    If you believe that growth asset values will continue to grow and do no harm to the fundamental economy in doing so, despite a streak of huge growth beyond anyone’s wildest dreams, against a backdrop of worsening GDP to debt ratios around the world, and shadow currency wars, then you’re bonkers.

    Nor does that outlook line up with the dire outlook provided by those selling annuities with very poor growth outlooks baked in for decades to come (last time I looked there was a stark mismatch in growth vs drawdown projections in the bankers favour)

    I’m glad to see USS trustees being cautious with projections and realistic about potential bleak future growth.
    Being one who follows the herd of bulls over a cliff would suggest they’re *not* doing their job correctly.
    Being bearish when there is good reason to be is a virtue.

    QE may be making the macro picture look pretty, but it’s a game that cannot end elegantly now.
    At some point high inflation catches up, or the hollowed out economy full of malinvestment fails.
    People won’t all be in for a free lunch.
    Sadly what USS are doing won’t change the inevitable.
    Any money in pensions is going to be devalued one way or the other.

    USS can’t win. No one can. If people feel driven to have a complain they should direct it to the lady at 10 Downing Street, and the chap at BofE.

    USS are just stuck in a minefield where they’ll likely lose wherever they move.

  5. henry tapper says:

    I hope you are proved wrong Dave.

  6. Pingback: Is the USS really in deficit? | Warwick UCU

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