Guess what! USS isn’t bust any more!

To no great surprise for readers of this blog, the notional deficit on the USS pension scheme has all but gone away , at least according to an interim valuation of assets and liabilities in March this year.

In two years the supposed deficit has shrunk from a seemingly existential £14.2bn to a relatively inconsequential £1.6bn

Of course we should be as wary of one valuation as another as neither are based on the long-term assumptions a pension scheme of USS’ structure should be employing.

In an email reported in the FT, Bill Galvin, who is CEO of the scheme executive, wrote to participating employers…

If the “positive experience” it had monitored over recent months became more established, there was “potential for better news at the next valuation than at those of the recent past”. “Were such a scenario to play out, it may be possible for the Joint Negotiating Committee (part of a scheme’s governance body) to consider increasing benefits or decreasing contributions (or some combination of both)”

Members of the scheme have, since April,. been paying more for less, something that has caused another strike and is currently putting in peril the graduation of yet another cohort of students whose work is threatened not to be marked.

Adjusting contribution and benefit levels every valuation is a crazy way to run a scheme. If USS applied to become a CDC scheme and its union and employer agreed to not meddle with the contributions (the DC bit) but continue to run the scheme as a collective pension (the C bit) then all this nonsense could be managed much more simly by simply adjusting the amount of indexation paid out to members.

Instead, the scheme is being at another extreme. It is run on a mark to market valuation basis with members having to pay more to get less and less to get more on what must appear an entirely arbitrary basis to most of them. This is a “worst of all worlds” basis.

Universities don’t go bust, they evolve over time and though they are subject to market forces, their financing assumes they will still be teaching in 2050 and 2100. It’s pension scheme should be run with similar horizons and should reject the absurd “boom and bust” valuations which are currently causing so much disruption on campuses.

One victim of the executive’s and the trustees’ failure to manage the scheme on a long-term basis is  a generation of students have graduated without proper teaching at a time when the pandemic has made their “best years” into a miserable anti-climax.

Another victim is the morale of university teachers in the USS which has plummeted.

A third victim is the status of our universities which is now diminished by the events of the past five years.

All of this was thoroughly avoidable, had the Pensions Regulator and the USS Trustees agreecd a proper funding plan based on the scheme remaining open. Instead, Bill Galvin – a former TPR CEO decided to take USS down a rabbit hole from which it is now struggling to climb out of. The misery of its time in the hole is clear to see.

Mike Otsuka, whose voice has featured on this blog many times, yesterday published an excellent blog on this which I urge you to read.

USS has fallen drastically from parity with public sector pensions (offered to many teaching staff).Mike is calling for the yellow line to start moving back to the blue line. Let’s hope that the long-term aspiration of the scheme is to match the benefits paid by Government to teachers under the taxpayer backed scheme.

I suspect that will take a leap of faith from unions, employers , executive and trustees in the long-term growth prospects of the UK economy and the liberating power of CDC.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Guess what! USS isn’t bust any more!

  1. Thanks, Henry, for the link to my blog. Today I posted a brief, punchier follow up to yesterday’s blog. This one is called “The 5th recovery plan of USS: The first time as tragedy; the second time as farce”. Link:

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