USS shows its workings – including a £16bn fall in assets in a single year

The USS has published its April 2023 Valuation Technical Provisions which can be downloaded here You can read them on the presentation at the bottom of the document (without a title page). Well done USS for sharing them.

The headline numbers are as follows

Which looks pleasing enough till you remember that the assets in 2020 were valued at the lowest point in a market struck by the impact of Covid 19. By April 2022 assets had risen to £88.9bn , they have since fallen almost £16bn. Losing £16bn in a year is going it some.

In my view, the last two USS valuations bring the valuation process into disrepute. It cannot be right that a scheme that has an infinite horizon for its liabilities can move from in 2018 , considering closing to future accrual to in 2020 requiring massive deficit contributions and cuts to member benefits, to in 2023 – considering reversing the benefit cuts, stopping deficit contributions and radically restructuring the contribution schedule.

Any actuaries who think this rollercoaster approach to pension funding and benefits brings them any credit, had better start talking to USS members who are heartily sick of this. Let’s hope that a more stable way of managing this scheme can be found.

Confidence on hold

We will have to await the publication of report and accounts, expected next week , to know what (if anything) USS are saying about how they are valuing their private assets. The valuation of its 20% stake in Thames Water and any Thames Water debt it may own, are matters of immediate concern. Last week, Canadian public sector fund – Omers – announced it had written down its valuation by 28%, has USS followed suit? The £73.1m current valuation of assets is material to member’s confidence in the scheme’s capacity to meet its obligations

The detailed analysis in the technical provisions suggest there should be confidence in the sustainability of the scheme’s funding but not to justify irrational exuberance among USS’ executive, trustees or sponsors. These are faithfully recorded in Professional Pensions, this being an example

UUK chief executive Vivienne Stern had positive things to say about the “extraordinary transformation” of USS’ funding position, which she said was caused by rising interest rates and changes to the scheme following its previous valuation, as well as covenant support from employers.

She said: “Figures today from the USS trustee on the 2023 valuation point towards union and employer representatives being able to take forward their agreement on creating stability, lowering contributions, and improving benefits. This will make a big difference to staff in this cost-of-living crisis and to USS employers faced with significant budget pressures.”

Devil in the assumptions

A detailed examination of the “tweaks” in assumptions in the technical provisions will now commence. USS have no option but to be transparent in publishing its valuation but USS are still to be congratulated for doing so.

But USS stands in stark contrast to other open pension schemes such as Railpen both in its asset and liability management. It has international comparators, one of whom was talking to a UK audience as part of Cardano’s “Pioneering Pensions” series

However, to understand just how far USS is from achieving its potential, watch this

Innovation happens when bold ideas are turned into practical solutions. How do we step out of our comfort zone and implement change? In this episode,  Derek Dobson offers  a real-life case study of how a defined benefit (DB) scheme transformed its core product, to offer fixed contributions for employers and flexibility for its members. As a result, new employers joined the scheme, and introduced defined contribution-style savings with DB value and decumulation products. 

To talk to us about this case study is Derek Dobson, CEO and Plan Manager of Canada’s CAAT Pension Plan. He and Stefan Lundbergh discuss the design and the process of taking an organisation and its trustees on the transformation journey. 

I hope that Stefan has sent it to all stakeholders of USS.

Supporting information

Here is the  detail – here is the supporting information for the technical provision consultation on which USS is about to embark

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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