I am not smart enough to add much to the academic debate pursued by Professors Michael Bromwich and Dennis Leech , the venerable Con Keating and the scholarly Woon Wong. Readers looking for the views of Ros Altmann can find them in her comments to Con’s article
All that I can do is make a call for a simplification of the debate – so that what comes out it makes sense to the hundreds of thousands whose retirements depend on USS making the best of it.
What should be done.
For me, the key takeaway from all this debate on USS is that someone needs to set out clearly what the objective of the scheme funding is to be.
Then USS can decide what investment strategy is to be used. The strategy needs to be focused on that that objective. Only when it has its investment strategy, can the USS decide how to manage its risks especially the investment risk.
This work needs to be done first and only then can USS consider how prudent its discount rate and funding needs to be.
This discount rate needs to support the investment strategy and take account of the ability of the sponsors to deal with the risks of the agreed contribution rate.
There is no legal requirement to protect the PPF. If the government ever feels it necessary to prescribe elements of scheme funding to protect the PPF, they can change the law.
Similarly there is no legally prescribed definition of prudence.
What a tangled mess. The problem for the USS is that universities are in the private sector but look more like public sector arrangements with a pension also more fit for the public sector. Academics tend to have steady careers and move around a lot so a collective plan looks right. It isn’t so distorted by high earners although some of the activities of vice chancellors cleverly playing the system to their advantage have been the most shocking I have seen in my career.
But the pandemic means the university sector is in crisis and judging by the car crash interview this week with Michelle Donelan https://m.youtube.com/watch?v=HlJhttF30HE it is in very unsafe hands. I have rarely felt so embarrassed to support the Conservatives as hearing this interview.
I don’t know where this will end because the problem is not addressed by academics showing that investment returns have exceeded rates in past valuations if the cost of becoming solvent is still so prohibitive. But I doubt contributions of up to 60% are likely to feature in many university funding plans. I guess the academics are going to be blessed with as much national financial support as their students.
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Peter – More than half of the 60% contribution rates come from deficit repair contributions. My analysis shows them to be figments of USS management’s imagination. Woon’s earlier work shows that 26% is more than adequate for future service contributions.
What USS needs is a plan that the parties can accept. That will require ladders for both sides to climb down!