A manifesto on the USS valuation — present and future — from members and friends of USSbriefs
Number 44: #USSbriefs44
Clive Barnett, University of Exeter
Gurminder K Bhambra, University of Sussex
Felicity Callard, Birkbeck, University of London
Gail Davies, University of Exeter
Sam Dolan, University of Sheffield
Deepa Govindarajan Driver, University of Reading
Philip Garnett, University of York
Jo Grady, University of Sheffield
Susanne Hakenbeck, University of Cambridge
Nick Hardy, University of Birmingham
John Holmwood, University of Nottingham
David Huyssen, University of York
Jaya John John, University of Oxford
Eric Lybeck, University of Exeter
Chris Millard, University of Sheffield
Nicky Priaulx, Cardiff University
Leon Rocha, University of Liverpool
Ruth Stirton, University of Sussex
This is a USSbrief, published on 17 August 2018, that belongs to the OpenUPP (Open USS Pension Panel) series. It was submitted to the UCU-UUK JEP (Joint Expert Panel) by the authors on 17 August 2018.
USSbriefs launched on 3 April 2018 and has since then been publishing research and argument to provide UCU members with a better understanding and analysis of issues relating to the USS pension dispute. Its sibling project, the Open USS Pension Panel (OpenUPP), has been running in parallel to the Joint Expert Panel (JEP) to demand that debates, data and evidence concerning the USS pension scheme are shared in public rather than behind closed doors (see USSbriefs25). This manifesto comprises a very short guide to the USSbriefs which we have submitted to the JEP, and an overview of our key arguments about the current valuation and the valuation process in general.
- We urge the JEP to recognise the effect of employer underpayments to USS in its deliberations on the current valuation methodology. We call on the Pensions Regulator to commence full investigations of the decisions and communications surrounding the USS Trustee’s repeated approval of a protracted reduction in employer contributions between 1997 and 2008 (see USSbriefs43 by Deepa Govindarajan Driver). These raise questions over whether the USS Trustee has acted in the interests of the Scheme’s members as opposed to its sponsoring employers.
- We demand — as Academics for Pensions Justice have done in USSbriefs26 — that Universities Superannuation Scheme Limited (USSL) provides full disclosure of the data, assumptions, and modelling approach underpinning the 2017 valuation to the JEP. We abhor the fact that USS considers the Trustee to be the ‘only party permitted to fully scrutinise the data, assumptions and modelling approach underpinning the 2017 valuation’ — and that members are not even told whether the Trustee or (by discretion) the JEP have actually been allowed to exercise such scrutiny in practice.
- We contest the overall framework and methods through which the current USS deficit has been calculated. We believe, drawing on the work of Dennis Leech and Woon Wong (USSbriefs7, USSbriefs28, USSbriefs34) that there is no reason why USS Defined Benefit (DB) pensions cannot be maintained well into the future as long as USS remains open. We call for other methods to be used for the valuation and for USS to demonstrate transparency over the methods it selects. We believe that the robustness of the pre-92 higher education sector as a whole has not been adequately taken into account in the valuation process (including the assessment of the covenant). USS is, in multiple ways, different from corporate pension schemes, not least because it is highly unlikely that the higher education sector as a whole will fail.
- In particular, we call for a fundamental reassessment of the role and uses of Tests, 1, 2 and 3. We concur with Sam Marsh (USSbriefs32) that Test 1, in particular, ‘is likely to be responsible for all of the perceived funding problems in the scheme’.
- We contest the means used by UUK to assess universities’ appetite for risk in relation to the covenant. We strongly oppose the shift from the September 2017 to the November 2017 valuation, which was in part justified through a minority (42%) of universities’ responses to UUK’s September consultation. There is clear evidence of coordination on the part of Oxbridge colleges (see USSbriefs13 by Sam Dolan, and Michael Otsuka’s previous investigations) in terms of their response, and of over-weighting of those colleges’ input compared with responses given by much larger employers. Several universities (and the majority of the Oxbridge colleges that responded to the consultation) have already changed their assessment of risk, now accepting higher levels of risk, and there is clearly scope for other universities to reassess their risk appetite in relation to the covenant.
- We oppose the various proposals made by USS to de-risk in the course of the 2017 valuation consultations. We concur with Woon Wong’s assessment in USSbriefs34 that ‘de-risking is not only sub-optimal, but could create more risk in the current low gilt-yield environment’.
- We emphasise the wider context of the so-called USS pensions crisis — namely the intensified financialisation and marketisation of UK universities (see USSbriefs3 by John Holmwood and Gurminder K Bhambra and USSbriefs16 by Clive Barnett). We demand that the ‘unique nature of the HE sector’ is one in which the retirements of those staffing this sector are protected rather than sacrificed on the back of the ‘great balance sheet shift of British universities’ away from government funding and towards bond liabilities.
- We do not accept the current case for shifting away from DB pensions and the implication (made in the ACAS agreement of 23 March 2018, for example) that ‘alternative scheme design options’ need to be considered. Specifically, we are unconvinced by UUK’s statement on risk of 22 March 2018, in which UUK argued it took into consideration a range of evidence — and not just the responses to its September 2017 survey. That evidence comprises views that UUK themselves have been marshalling since at least 2014 to support the attack on DB pensions, with the cooperation of the Employers Pensions Forum (EPF) and their consultants (see USSbriefs1 by Felicity Callard and USSbriefs5 by Gail Davies).
- We call for more time to be given to resolving the approach to the USS valuation, given the higher education sector’s importance to the country. A sustainable way forward for USS DB pensions is possible — indeed Bill Galvin himself stated on 25 July 2018 that ‘[USS] do[es] not believe that providing defined benefit pensions is impossible’. But the necessary negotiations and changes involving appropriate experts in academia and the actuarial industry, USS, tPR, UUK, and UCU might take more than a year. It is imperative that USS DB pensions are not wittingly or unwittingly destroyed because of a manufactured rush to resolution. (See Woon Wong’s USSbriefs34 and Felicity Callard, Andrew Chitty, Jo Grady, Nick Hardy, Jaya John John, Philip Garnett and Leon Rocha’s USSbriefs33.)
- We call for any future valuation significantly to open up which risks are assessed, how, and by whom. Gail Davies, in USSbriefs5, demonstrated how, through the use of a tight circle of consultancy and accountancy firms, there has been ‘the narrowing of advice and expertise around a particular version of risk’. The 2017 valuation did not incorporate the significant risk to university governance and staffing resulting from a potential industrial dispute; nor the inequality of risks of pension poverty in relation to gender, ethnicity, race and disability on account of the proposed move to DC that accompanied that valuation (see USSbriefs4 by Claire Marris). If the processes and methods by which USS, UUK and individual universities judge risk are not improved, there is a significant risk that leaders of pre-92 universities will face a permanent crisis of legitimation and governance.
- We call for USS, UUK, and individual universities to improve their processes of consultation and deliberation, and their commitment to transparency, in future USS valuations. The ‘key principles’ that should ‘underpin the future joint approach of UUK and UCU to the valuation of the USS fund’ should have, at their core, transparent and meaningful deliberation over appropriate methods for the valuation of a unique scheme. The purpose and legal duty of the scheme is to ensure the best outcome for the beneficiaries, not for the employers or the managers of the scheme.
In addition to this manifesto, we have submitted to the JEP:
USSbriefs1: The drive to convert to DC: a short history
USSbriefs3: The pensions dispute and the marketisation of Higher Education
USSbriefs4: Why USS pension cuts will not be spread equally
USSbriefs5: The role of consultancies in the USS dispute
USSbriefs7: Is there really a USS deficit?
USSbriefs13: Cambridge and Oxford in the USS pensions dispute
USSbriefs16: The financialisation of Higher Education and the USS dispute
USSbriefs25: Opening up the USS Joint Expert Panel
USSbriefs26: Open Letter from Academics for Pensions Justice
USSbriefs28: USS is a special case: 17 questions for the Joint Expert Panel
USSbriefs32: Understanding ‘Test 1’: a submission to the Joint Expert Panel
USSbriefs33: Staying vigilant: leaked documents reveal new rift between UUK and USS over contribution increases and the future of the pension scheme
USSbriefs34: Industry debate and USS’s ‘phantom deficit’
USSbriefs43: A breach of trust: employer underpayments, the deficit, and the role of the USS Trustee
This is a USSbrief, published on 17 August 2018, that belongs to the OpenUPP (Open USS Pension Panel) series. It was submitted to the UCU-UUK JEP (Joint Expert Panel) by the authors on 17 August 2018. This paper represents the views of the authors only. The authors believe all information to be reliable and accurate; if any errors are found please contact us so that we can correct them. We welcome discussion of the points raised and suggest that discussants use Twitter with the hashtags #USSbriefs44 and #OpenUPP2018; the authors will try to respond as appropriate. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.