USS and the risks of power over other people’s wealth



In political science and popular discourse,[1] the horseshoe theory asserts that the far-left and the far-right, rather than being at opposite and opposing ends of a linear political continuum, closely resemble one another, analogous to the way that the opposite ends of a horseshoe are close together. ..Proponents of the theory point to a number of similarities between the far-left and the far-right, including their supposed propensity to gravitate to authoritarianism or totalitarianism. – wikipedia

As well as public comments, this blog gets some private comments and occasionally a private comment , sent to me with a view of being published. I got one this week from Jon Spain, one of Britain’s top pension actuaries, who’s views I have always respected, even if I can’t always get to the bottom of his knowledge and experience. Here is his comment.

Having read Con Keating’s USS piece published on 07 March, I thought I’d like to add a point on prudence. In reality, that can only be identified once one has derived a best estimate, which needs to be cogently explained.

UK technical actuarial standards have now been overseen by the FRC for just about 15 years and the current pensions-specific document (“TAS 300”,  has been in force since July 2017. Interestingly, communications are required to include sufficient information to enable the user to understand the level of prudence in the assumptions and the resulting actuarial information (TAS 300, paragraph 6 on page 5). Further, communications are required to include an explanation of, and reason for, any material change in the level of prudence from the previous exercise (TAS 300, paragraph 7 on page 5). Not having seen a recent actuarial valuation report, I can’t say if these requirements are now fully met but I can say that I’ve never seen prudence quantified before; has anyone else?

Without such information, analogous to “horseshoe theory”  the USS approach seems to treat being reckless the same as being prudent.

Jon chooses his words carefully, the USS’ failure to provide information to stakeholders, is not “horseshoe theory” but analogous to it. The closing loop of the horseshoe which brings together left and right extremes is characterized by authoritarianism and happens when control is concentrated in those governing the process.

For the extremes of communism and capitalism in the illustration above, he replaces recklessness and prudence which he sees as converging  towards a clos d loop that excludes debate by collapsing the dialectic. In a totalitarian world words like prudence and recklessness can mean whatever you want them to mean,

Jon’s covering mail includes the comment

So far as I can see, USS officials have no sense of duty to the employers, possibly not even to the members.

The risk is that the USS executive has become too powerful to need to explain itself – except on its own terms. It now uses words which it has appropriated from actuarial science to justify its own perpetuity.

The risks of power over other people’s wealth.

I will make a further observation and that is that the control of great wealth carries its own risks. These include the risk of those in control of the wealth self-inflating their importance to a point where they feel they do not need to be accountable to their stakeholders. Signs of this happening include the awarding of super-salaries with no grounding in “value for money” and the consequent belief that their reward justifies and even demands totalitarian behavior.

It seems to me that the USS executive finds itself in precisely this position. Risking explaining how best estimates have been arrived at , risks losing authority, the authority that justifies the personal sense of self belief shared by the executive. So it is better for them to go on as they and hoping that they can continue to call their stakeholder’s bluff.

Such tactics are common and  can be recognised in many boardrooms, not to mention  staterooms. But that doesn’t make them right. So long as there are those on the outside of the boardroom, keeping the door ajar, then there is a gap between the arms of the horseshoe that ensures it is not a closed loop. We are well to have the likes of Keating, Spain and others doing just that



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to USS and the risks of power over other people’s wealth

  1. Peter Tompkins says:

    I’m not really sure the horseshoe analogy works that well here. Spain, Keating and you are at one end of an economic valuation spectrum where Ralfe is at the other. My guess is that the kirk is somewhere in the middle but I don’t see a loop closing up at the ends.

  2. Derek Scott says:

    TAS 300 was, in my view, watered down at the time of the 2017 iteration referred to by Jon Spain, when the Financial Reporting Council said this:

    “We consider that it is important that trustees understand the level of prudence in the assumptions used to calculate technical provisions.  The Pensions TAS (paragraph E.2.10) requires aggregate reports to include a comparison of the technical provisions with a calculation of liabilities using neutral assumptions.  We have had feedback that other methods might better explain the level of prudence in technical provisions.  We understand the feedback and have decided to modify the approach in TAS 300 to require an indication, rather than quantification, of the level of prudence.”

    So the actuaries would rather merely give an indicative communication rather than a quantified one, which I find perplexing.

    The FRC are reviewing actuarial standards just now, see link below:

    But the emphasis seems to be on TAS 100 rather than TAS 300. Why are they being so defensive about this?

    • jonspainwp says:

      Derek’s comments surprise me because, as published, TAS 300 (2017) explicitly requires the quantification; have I missed something?

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