Correspondence has emerged between the various macro-stakeholders in the USS “pension deficit”
The cast in order of appearance
Frank Field – Chair Elect of the Work and Pensions Committee.
Field
Here he is kicking off correspondence in August with….
Lesley Titcomb – CEO of the Pensions Regulator.
Titcomb
Here is her response to Frank Field.
Field also writes to Professor Janet Beer at Universities UK (the sponsoring employer)
Beer
And Janet Beer responds to Field on behalf of the employers.
Frank Field writes to David Eastwood, Chair of the USS
David Eastwood, Chair of the USS , responds to Field.
Eastwood
Taken together, this correspondence ,mainly in August 2017 forms an archive for future scholars trying to unravel the complex dynamics at play.
Frank Field – fresh from a bruising encounter with Philip Green of BHS is determined to be on top of the USS deficit,
Lesley Titcomb is determined to show Frank Field she is on the case and working hard to protect the PPF and the employer’s interests.
Field is critical of the Universities UK for inadequately funding USS and wants tuition fees ring-fenced.
Janet Beer hints that rather than put up tuition fees, Universities UK would prefer “benefit reform” ( a euphemism for pension cuts).
Field is critical of the USS’ management of the investment of the scheme, it’s recovery plan and wants to know more about actuarial assumptions
David Eastwood defends the USS’ management’s transparent approach and hints that it is piggy in the middle.
Taken together, the correspondence displays how difficult it is to align the interests of the general public, employers and the managers of the scheme. The voice that is not heard in this debate is that of the members, who appear to be the stakeholder most likely to pick up the tab (by way of pension cuts).
The heart of the matter
Perhaps the most interesting letter is that from Lesley Titcomb to Frank Field in which she sets out the guiding principles that tPR’s past intervention prompted USS to adopt.
These principles are open to challenge.
Take the first bullet;- What does “proportionate” mean? Given that DB pensions are not funded like insurers, with no legislative standard other than “prudent”, what level of risk protection is reasonable/prudent for a scheme like USS? We now know that the Pensions Regulator is not prepared to accept the covenant assessments carried out by PWC and E&Y on UUK, so presumably tPR reckons itself the judge of prudence. This was never the Regulator’s role.
How exactly is USS pension risk measured? The USS is an open scheme with liabilities already into the 22nd century. Who defines the suitability of the risk measure and what is it?
Take the second bullet; what is meant by risk reduction? Pension cuts dressed up as “liability reduction exercises”? Why should tPR be intervening in what is fundamentally a matter of reward? The total compensation of those in the USS is the aggregate of pay and benefits, if benefits are reduced, does this not put upward pressure on pay? If so- where is the long-term gradual risk reduction going to be achieved?
Why is the Pensions Regulator taking such a proactive stance?
As mentioned above, the spectre of BHS runs through this correspondence. No one wants to be seen to be weak, everyone has to be on the front foot and so we have this extraordinary meddling.
Ironically, the losers in any pension dispute are the members who either see their benefits or their covenant reducing. The irony is that the members are hardly mentioned in this correspondence, they seem to rank lower than the interests of the tax-payer (who pays the student fees), the Universities, the USS (who have an a priori charge on the assets for their management) and of course the Regulator. The Regulator’s agenda – it appears – is primarily to protect the PPF, secondly to protect the sponsor and finally to protect members.
Here is the nub.
BHS, Tata Steel, Royal Mail, Halcrow have one thing in common, an employer with uncertain revenues and a weak business model. The USS is different, Universities are well funded, have strong cash-flow, excellent contingent assets and have no history of failure.
Both PWC and Ernst and Young considered the University’s covenant to be grade 1 (as good as it gets). TPR has disputed and is not yet prepared to accept the covenant assessments
It is hard with so much evidence to suggest that Universities UK cannot stand the risk, that the battle being fought is not about Universities going bust, or fees going up, but about USS members continuing to accrue a defined benefit in retirement.
While I can understand the feelings of deprivation amongst those who are not accruing such a defined benefit, I do not agree with the principle of “beggar my neighbour”. For the same reason , I do not believe those who have fine houses should be forced to live in the annex and rent out the majority on affordable rents.
Fine pensions and fine houses are the privilege of a few but they are things that can be achieved by the many over time. They are things that people can work for. If we want to pull down our pension schemes, why not pull down fine houses too?
The alternative
The principle of “beggar my neighbour” that runs through much of the correspondence between the four parties in these discussions is mean-spirited and self-destructive. No one will win by transferring USS assets from equities to bonds.
In comparison, the £60bn of assets that the USS currently invests, are funding British industry, our infrastructure and doing so in a sustainable way.
No one will gain if the University staff go on strike, least of all those who pay tuition fees.
The tax-payer is the insurer of last resort of the maintenance of the University system and has been, one way or another since the 15th century.
It is an extraordinary thing, that the Pensions Regulator and the Universities themselves seem to have come to a pact which assume there can be no escalation in risk from pensions. For within the Pension Regulator’s letter to Frank Field we discover;-
Instead of looking at the USS as a threat to the Universities’ future solvency, we should be adopting a “can do” approach – glorying in the taking on of 27,000 new members, exploring the flexibility of the scheme funding regime and looking at those £60bn assets as a tremendous opportunity.
For to look at pension liabilities as a threat, is to forget they represent the futures of millions of UK citizens which are the better for them. The mantra of risk-reduction hides a more fundamental issue, our workforce is relatively unproductive. If the best we can do to make our human resource more productive is to starve them of retirement income, we have no real understanding of personal motivation.
If we want to make Britain great again, we need to be a lot more ambitious in the way we deal with issues like the USS “pension deficit”.