I do not envy the task of the new CEO of USS, though I must state that I have no insight who this might be. Over the past decade, the governance of USS has degenerated into a disgrace, characterised by some of the worst practices of rogue bureaucracies. It seems that there has been a policy that information should not be readily released, and that which is should not be in complete or comprehensible form, and certainly none without an accompanying narrative of spin. Valuations have been reduced to exercises in gerrymandering.
To offer just a few illustrations: members were asked to believe that the investment returns of the fund would be CPI minus 0.75% for the next 30 years, and that was a major contributor the decision to cut members’ benefits. More recently, we were asked to believe that the loss of £20 billion of assets was a success story. We might ask: what would the loss have been had USS not been geared through repo borrowing and derivatives? That loss is more than half the annual budget of the higher education sector.
I will leave to others the task of determining why and exactly how all this has come to pass.
The task, of course, will be reform of the institution, which would benefit both employers and scheme members. Much of this will take time to implement. It is tempting to suggest that a full forensic (multi-year) audit of USS should be conducted, and some masterplan developed, but the costs of the inaction and delays associated with that should be unacceptable to all.
There is an action which would signal to all that a new regime is in charge and go far in restoring trust and goodwill between all stakeholders. That action would be full and immediate restoration of the cuts to member benefits recently implemented.
It is now clear that these can be reinstated in full and leave a substantial margin for the lowering of employer contribution rates at future triennial valuations. This is not some artefact of the recent LDI crisis – we have seen a steady improvement of the funding position of USS over the past two years – from a deficit of £14.4 billion to a surplus of £5.6 billion. An indicator perhaps of just how distorted the 2020 pandemic valuation really was.
There is process to be followed, including a consultation of members, but it is hard to believe that members would not wish to see full restoration of their benefits. It would be feasible to achieve this by April 1 2023. For more detail of the cuts and process, see: reverseuss.wordpress.com.
I will not rehearse here any of the arguments which might be made with respect to the relative merits of partial restoration, or of contribution cuts, or other variants to immediate full restoration including the timing. They rightly belong to the discussions within the consultation process.
A signal from the management and trustees of USS that they would like to see restoration as soon as practical would be a start in repairing the troubled industrial relations of the higher education sector, which have been too fraught for too long. It would a start in restoring member trust and confidence in USS, which has been ruined by increasingly controversial valuations, which are clearly starting to come to light as just that.