The 2020 USS valuation: history repeating?
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This is a USSbrief, published on 9 March 2020, that belongs to the OpenUPP (Open USS Pension Panel) series. The author is a USS scheme member, a member of the University of Sheffield USS Working Group, a UCU-elected JNC member (June 2018-present), and is writing in a personal capacity.
Shortly before Christmas 2019, the Joint Expert Panel (JEP) published their second report. This followed on from the well-received first report of autumn 2018, and its remit was to look in greater depth at the valuation processes and methodology. In what was perhaps a sign of the panel’s frustrations of the failure to collectively go forward with the proposals in the first report, the panel’s new advice came with a warning shot (p.94):
The Panel believes that a failure to take forward the recommendations in this report would mark a failure for members, employers and the sector.
High stakes, then, for all involved in the scheme’s upcoming valuation.
With talks so far over the second JEP report having been held behind closed doors, the first test of progress is in the document USS have released today (9 March 2020) covering their proposed methodology for the 2020 valuation. Employers are invited to comment on the proposals to inform and influence final methodology decisions in late spring of 2020. USS are eager to assert that ‘no decisions have been taken at this stage’ and that they ‘will consider alternative approaches with an open mind’. So, how does USS’s document measure up against the recommendation in the second JEP report, and what hope is there for a new valuation approach?
Firstly, some good news, in headline form. There is evidence of movement in USS’s approach. The JEP recommended a ‘dual discount rate’ as a way to ‘better reflect the profile of the Scheme’, and this features in USS’s plans. The panel was also scathing about the much-criticised ‘Test 1’, and USS have dropped it from their methodology. USS did ‘establish a joint forum on valuation’ with UCU and Universities UK (UUK), and this did include three of the scheme’s trustees. But, for the 2020 valuation, this is where the good news ends.
2. Test 1 v2.0
To understand the bad news, one has to look past the headlines. Test 1? Gone, but replaced with what might be described as Test 1 v2.0, which appears to suffer from the same ‘large and demonstrable mistake’ as its predecessor. Dual discount rate? Present, but used in a way that matches the old methodology as closely as possible. Establish a Valuation Methodology Discussion Forum? This has been an increasingly frustrating experience for Forum members, with minimal engagement from USS with the views of both UCU and UUK and a familiar resistance to exploring or providing evidence. (The Forum has, however, had the effect of bringing the member and employer representatives closer together.)
What those of us on the Valuation Methodology Discussion Forum have seen in USS’s response to the second JEP report is one of an organisation that knows it is right, does not accept advice, and does not feel the need to justify its decisions. Where there was an opportunity for genuine, collaborative exploration of valuation methodology with an assembled group eager to understand the risks the scheme faces and to use evidence to inform the decision-making, we have instead seen USS lock down the evidence, marginalise alternative viewpoints, and push ahead with the publication of a document that is not a sound basis on which to consult employers. In this, it is behaving consistent to form.
3. USS employers: don’t stay silent
And so a call-out to all USS employers: your representatives have been involved in the discussions that led to the preparation of the document. They have seen close-up the behaviour I have described above. That the sector is currently in the grip of a hugely damaging dispute over the scheme is a direct consequence of your inaction stretching back many years (see for example USSbriefs79). Whether over the unjustified de-risking pushing costs up in the scheme, the flawed black-boxed algorithm driving the valuation (see USSbriefs32), the lack of evidence-based decision making, or the dismissal of a whistle-blowing member-nominated trustee (see USSbriefs83), you have repeatedly failed to act to defend the safe stewardship of your staff’s pensions.
This is a pivotal moment which needs a robust response. You must not let us down again.
This is a USSbrief, published on 9 March 2020, that belongs to the OpenUPP (Open USS Pension Panel) series. The author is a USS scheme member, a member of the University of Sheffield USS Working Group, a UCU-elected JNC member (June 2018-present), and is writing in a personal capacity. This paper represents the views of the author only. The author believes 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 #USSbriefs91; the author will try to respond as appropriate. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.