Email from Cambridge Pensions Sub-Committee to College Bursars

Below is the full text of the leaked email which I discuss in this linked post:

From: [] On Behalf Of Simon Summers
Sent: 21 September 2017 14:57
Subject: Response to current USS Consultation, please review before September 28th
The Pensions Sub-Committee attaches a suggested response to the current consultation which closes on September 29th. This is an important moment in the evolution of USS and please consider responding to the consultation, perhaps using the attached as a guide.
The key issues are:
1. In the opinion of the Employers body UUK, and now crucially also of the Pensions Regulator (PR)- you should have received the email below with the attached letter- the Trustees are overestimating the medium term credit quality of the Higher Education sector, and using very aggressive assumptions to provide options for the next set of benefits and contributions (to apply from 2018–21) to both fund future service and to start to reduce the past service deficit.
2. Even on the Trustees’ own calculations, the feasible level of Defined Benefits to be accrued for future service is very much less than that which has applied for the past year or so (ie the indexed £55kpa salary threshold between DB and DC).
3. This is a point in time when the Scheme has to decide between:
a. very significantly increased contributions to maintain a meaningful of DB benefit accrual for future service, which neither employees nor employers see as affordable, and which could easily accrue a bigger Scheme deficit
b. a low threshold between DB and DC for future service (£15k pa is quoted, but even this is challenged by the line of argument in the PR letter)
c. a move to DC for future service. While the Employers would still have to deal with the very large past service deficit, future investment risk and return would fall on the employees.
4. Sectionalisation of the Scheme, whereby the stronger covenants in the Sector such as the Colleges and University would no longer act as ‘last men standing’ in the worst case, and which would actually be achieved for future service by a move to DC. Whether the last man standing risks within the past service deficit can be addressed remains to be considered.
For these reasons the Sub Committee recommends that all Colleges aim to respond to the consultation. The suggested response to Question 2 includes a formulation to show that the responses may not have been formally approved by Colleges. It also advocates a strong move towards DC now. You will also wish to consider how to achieve a consensus view in your College about the issues facing the Scheme, during Michaelmas Term, especially with all the obvious conflicts of interest in having Fellows who are at the same time charity trustees, voting GB members and Scheme beneficiaries.
Finally just a reminder that you have the opportunity to meet USS representatives in St Catharine’s on October 6th at 2pm, to discuss sectionalisation but also clearly now the way ahead on benefits and contribution rates. Please advise OIS if you wish to attend, HR Managers and/ or College Accountants are also welcome.
Simon Summers
St Catharine’s College, Cambridge