When I wrote my blog yesterday, I had not read the USS consultation document which contains the basis of the triennial valuation it has just completed. I was writing “over” the FT article written by Jo Cumbo which (as usual) presented a fair view of the issues.
I wanted to test how far I, as a non-actuary but informed pension person, could go in judging what the USS Trustees were saying. My comments were “un-expert” and I got a few things wrong , I suspect I will continue to do so, I want my understanding to be challenged and informed so I can get better at understanding things.
We cannot all be experts, I know many of the experts who were behind the consultation and would have a drink with any of them, but I don’t agree with a lot of what they are saying and this is why.
I am restricting my comments to the announcement that is made on the USS website.
Why I think USS Trustees are wrong.
At the heart of USS Trustee’s thinking is a wish to be self-sufficient. Like the Pension Protection Fund, USS wants to manage its own affairs without being beholden to the employers who do the bulk of the funding (and even the members who pay 35% of the costs).
I don’t understand this wish to be self-sufficient.
I don’t see the fundamentals of retirement funding changing any time soon – or ever! People want certain incomes – a wage for life in retirement. Teachers are sold a career that gives them just that (whether in the USS or the Teachers pension scheme).
It is assumed that their employers, the universities and other educational institutions have a wish to pay them part of their earnings in pension contributions and this too will continue for ever.
So why are the trustees so obsessed with being self sufficient? Do they think that universities will stop sponsoring USS? Is this really a risk? Why?
In order to meet the growing expense of becoming self-sufficient, the trustees are looking to get employers to pay special contributions (above the regular contributions of an amount equal to 2.1% of the liabilities. This is the same percentage as being paid since 2014 but – since it is 2.1% of a much higher set of liabilities, it means that the Trustees want more money from employers and more money from teachers (assuming the pain is shared 65/35).
But why?
Why set up all your calculations on the basis that there won’t be any funding from sponsors of members from 30 years time? Why not simply abandon self-sufficiency as a target and tell the Pensions Regulator the findings of the PWC covenant assessment? Universities really are uniquely robust, some of them been around over 500 years!
There really is no urgency to close the £5bn deficit in the actuarial valuation, any more than there is to worry about the £17.5bn supposed deficit sitting on employer’s balance sheets.
Why this matters.
I am not an actuary, nor a member of USS, I am – in a round a bout way a sponsor. My son is currently at University and racking up debts from university fees which may increase as a result of this consultation. I am a tax-payer paying for the costs of the universities and ultimately for these pensions. I have a right to comment.
USS is not the PPF, the Pensions Regulator has no reason to enforce the 2.1% special contribution, Frank Field should read this blog and leave the USS trustees alone.
This matters because we are talking about having confidence in the future, confidence in the future of employers to fund pensions and confidence that pensions will continue to be paid ad infinitum.
If we do not believe our Universities have a future, we have no belief in the future at all.
I’ll say it again, these are my views not my employer’s ; I am only reading what I can as a non-expert; I may be wrong. If you think I am- please challenge me publicly on social media, or comment below or write to me privately at henry.h.tapper@gmail.com
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.
https://www.sheffield.ac.uk/hr/thedeal/pensionupdates/ussvaluation
Something of a coup for a small group who have been pressing for disclosure – all this is now in the public domain.