Why we must change the leadership and trustees at USS

Number 70: #USSbriefs70

Published in
11 min readMar 30, 2019


Deepa Govindarajan Driver, University of Reading

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This is a USSbrief, published on 31 March 2019, that belongs to the OpenUPP (Open USS Pension Panel) series. It has been submitted to the UCU-UUK JEP (Joint Expert Panel) by the author on 25 March 2019.

The Memorandum of Association of the Universities Superannuation Scheme (USS) states that the Trust was originally and irrevocably established for the ‘benefit of university teachers and other staff of comparable status’. USS Ltd (USSL), as the corporate trustee (and its directors who assume individual trusteeship responsibilities as a consequence of being Board members), therefore has a core duty to this identified beneficiary.

This includes the oversight of

  • custody of scheme assets
  • protection of accrued benefits
  • value creation for pension scheme beneficiaries (the definition of beneficiaries includes potential members of the Scheme) and corresponding investment management
  • how such value is distributed, what rights and responsibilities are recognised (including disputes), and
  • the delivery of the above by the USSL executive team and how they

* ensure the robustness of USSL systems and controls
* manage those with delegated responsibility (including USS Investment Management Ltd (USSIM), special purpose vehicles, other subsidiaries and third parties)
* communicate with members and
* demonstrate accountability for the trust reposed in them in accordance with Trust law, regulatory requirements, the trust deed and the rules of the Scheme.

In its governance framework, when describing directors’ duties, USSL notes that trustees are expected to ‘constructively challenge, debate intelligently and test recommendations’ of those managing the Scheme and its investments.

The commentary below seeks to examine the governance of the Scheme and bring to your attention several areas of material weakness so as to allow the Joint Expert Panel (JEP) to facilitate both introspection and action by UCU and UUK as parties to the Joint Negotiating Committee (JNC). In particular, I would like to highlight the virtual absence of constructive challenge, intelligent debate and testing of recommendations that are held aloft as being crucial to the governance of the Scheme. It is hoped that by doing so, the JEP will be able to help UUK, UCU and the USS Board to refocus USSL on the achievement of its intended objective as set out in the Memorandum of Association as above.

The comments below are largely premised upon USS Scheme Rules, TPR’s guidance about the role and responsibilities of pension fund trustees, and The UK Corporate Governance Code for listed firms. It is worth noting that the inclusion of comments related to the Corporate Governance Code is consistent with USSL’s own aspiration, as stated in its recently published governance framework, wherein it seeks adherence to the UK Corporate Governance for listed firms, as a matter of good practice. The Code encourages Boards to consider their responsibility to a broad range of stakeholders and encourages Boards to demonstrate respect, integrity, openness to challenge and scrutiny and a commitment to responsiveness and diversity.

It is worth explicitly pointing out at this stage that pension funds such as USS do not exist in isolation. Large pension funds such as USS play a vital role in our society and our economy. This is as responsible corporate citizens, as institutional investors facilitating the growth and development of our economy and its direction through carrying funds for longer-term investment, in their role as major investors affecting the governance of companies they invest in, as payers of corporate tax, and as providers of employment and opportunity. The recent strategy of supposedly ‘de-risking’, by skewing the investment of assets towards a greater investment in bonds rather than equities, not only undermines the sustainability of the Defined Benefit (DB) provision in the Scheme but also the wider objective of pension funds providing funding for entrepreneurship through investment in equities as an asset class. While some may argue that this is not what the Trust deeds require USSL to do, large corporations, including USSL, owe certain duties to society in addition to their duties as institutional investors.

It is now widely recognised (particularly after the global financial crisis of 2007) that we need governance that takes into account such duties, as corporations such as USSL benefit from a number of privileges, including limited liability, trust status and artificial personhood, not to mention the benefits to corporations from an educated workforce, orderly markets, the justice system, etc. Pension funds owe a particular duty to prioritise good corporate governance, not just because they, as aggregators of private saving, make vital investment decisions which shape or distort the economy, but also because of their vital role in taking part in the corporate governance tools of ‘voice’ and ‘exit’, thereby influencing the corporate governance of the institutions and projects they invest in. Without responsible governance [2], particularly in large financial corporations, the societal purpose of providing rights of incorporation will not be achieved and financial crises that erode value will recur.

1. Board selection, composition and renewal

1.1 Diversity and plurality promoting critical engagement
USS — as you are well aware — is a hybrid Scheme with a predominantly DB component. However, the majority of current USSL directors (particularly independent directors) do not appear to have been selected on the basis of a substantive track record in, or commitment to, securing and promoting the sustainable provision of DB. Curiously, a majority of independent directors come from backgrounds or have prior employment or current employment, that predisposes them to industry’s current ‘groupthink’ that advocates for DB Schemes to move to predominantly Defined Contribution (DC) or Collective Defined Contribution (CDC) provision.

The corporate trustee’s annual reports indicate a worrying lack of diversity on the Board on several counts including, for example, the noticeable absence of BAME representation. This lack of diversity mirrors the lack of diversity on the executive team.

The JEP should suggest that the Board demonstrate a credible commitment to greater diversity in the backgrounds, experience and points of view both within the Board and amongst the executive. All directors, and particularly independent directors, must share a clear commitment to preserving USS as a DB scheme. Any forthcoming replacements or new inclusions to the Board must reflect this explicitly to redress the imbalance in the existing collective interest that would be predisposed to moving the Scheme to a predominantly DC/CDC provision.

The JEP, as part of this review, should confirm that the conflicts register maintained by the Board is up to date, and Board recusals in the past five years adequately reflect any Board conflicts on relevant decisions.

1.2 Length of service and rotation of Board members
Annual reports indicate that good practice in relation to length of service and rotation of Directors have not been observed. Over the past two decades, for example, some Board members have served several, lengthy terms on the Board of USSL. Examples include Sir Martin Harris (24 years, of which nine years as Chairman of the Scheme) and Sir David Eastwood (12 years).

1.3 Remuneration
What is more galling is that Board members appear to have drawn significant, steadily increasing fees as remuneration for their duties on the Board and its committees, over a period when member benefits were being steadily eroded. To add insult to injury, some Board members (e.g. Prof Dame Glynis Breakwell) drawing such eye-watering fees also have a poor attendance record (USS Reports & Accounts for the Year Ended 31 March 2018, p.43) at Board and committee meetings. These concerns about remuneration are paralleled in the executive functions of USSL.

The JEP should request the JNC to adopt a maximum duration of trusteeship by any one individual, and ideally limit membership of the Board to a maximum of two terms of three years each, consecutive or otherwise.

1.4 Disclosure and transparency
USSL has been lacking in its transparency to members of the Scheme. For example, the outcomes of Board deliberations, including voting records, are not easily accessible to members, and minutes are not made available for scrutiny by members. This is contrary to the Corporate Governance Code’s exhortation of openness. It has been suggested by some that members may acquire more assurance through their union representatives on the JNC. Union representatives on the JNC are often provided with documentation, which they can only relay to members if they weren’t bound by USS’s confidentiality requirements to not disclose these outside the JNC.

This has hamstrung the work of the union to effectively advocate the interests of Scheme members (both current and potential).

The JEP should recommend that JNC papers and minutes are made available to members on a regular basis and redactions for confidentiality should only be made on a suitably justified and exceptional basis. In particular full voting records should be made available for scrutiny by all Scheme beneficiaries in an appropriate and timely manner.

1.5 Strategic decisions and culture
The regulator requires members of the Board to act in a manner consistent with beneficiary interests. However, across a number of different decisions, including the decision to permit underpayments for well over a decade, it has become very apparent that members’ interests have been subordinated to those of the in-house team and/or employers. UUK-nominated directors, in particular, appear not to have discharged their trusteeship responsibilities in a manner that serves the interests of the members of the Scheme (as demanded of trustees) rather than simply serving the interests of their employers.

The membership base of USS is unusual in its high levels of expertise in a number of key technical areas of relevance to USS. The disrespect for the intellect and expertise of members and their representatives is particularly evident in the unresponsiveness to members’ comments, and in the absence of reflection and self-critical enquiry amongst the executive of USSL in the aftermath of the USS strike of 2018. There appears to be a mistaken belief amongst the executive, notable for example in Group CEO (GCEO) Bill Galvin’s updates to members and a recent webinar, that there is no real reason to re-examine recent valuations. The assumption here is that members’ queries simply stem from a lack of understanding of the Scheme and can therefore be remedied by slicker communications. Other examples include the arrogant, condescending and incomplete response by the USS GCEO to written member complaints about decade-long employer underpayments into the Scheme, the weak responses to thoughtful criticisms of flaws in recent valuations that have in turn been used as a ruse to close the DB element of the Scheme, and the lack of attention to concerns regarding the lack of transparency in respect of the valuation models and Test 1 (used by USSL as a test for self-sufficiency).

That key issues such as the well-documented problems with Test 1 have not been acknowledged, let alone addressed, despite persistent member complaints, indicates a serious lack of due diligence and critical challenge by the Board. This is contrary not just to USS’s own governance framework but also to their statutory duties to beneficiaries. This is further underlined by the lack of Board challenge to the executive’s cherry-picking of recommendations from the JEP in its first phase, when arguably the JEP consists of key peer experts.

Another area of material concern is in the direction of expenditure supported by the executive of USSL and USSIM. Since 2009, there appears to have been an unjustified and disproportionate increase in investment in technology, infrastructure and staff supporting the DC (investment choice) element of the Scheme, which according to the 2018 annual report (p.5) accounts for only 17% of Scheme members (see expenditure changes since 2014). This inappropriate allocation of members’ funds towards supporting DC elements of the Scheme, as well as the so-called ‘de-risking’ of the Scheme, are all driven by the perceived need to close DB and the self-fulfilling belief that the USS Scheme will end up as a DC Scheme. This is of course in flagrant disregard of the interests of the majority of members. It would be useful to question this trajectory, which may have been shaped by a desire to smooth a transition to making the Scheme a DC scheme. Given the sustainability of the DB Scheme, this is contrary to regulatory guidance requiring directors of USSL to act in a manner consistent with the interests of beneficiaries.

A third significant issue is evidenced by the concerns expressed by members of the union’s JNC, as well as members of the Board, about the lack of responsiveness to their queries coupled with the provision of shoddy or incomplete information on important topics or before key meetings, with insufficient time for reflection and deliberation by recipients of the information. This undermines the effectiveness of the Board and further prevents critical engagement.

There are few opportunities for members to correspond with USS on issues of strategic concern. Any engagement with USS is largely through rare Scheme-wide member consultations, such as the recent consultation on contributions increases. USS complains about a lack of member responsiveness, but when members do respond, instead of engaging with the substance of their response, members’ contributions are dismissed on spurious grounds. That the Board does not challenge such responses is further evidence of a supine Board.

The above examples, and the points previously made regarding a lack of diversity, point to a persistent and long-standing culture within the organisation and the Board of pandering to the senior executives of USSL, and to a lack of rigour in Board and executive decision-making.

Since the Trust is intended for the benefit of members, please would the JEP recommend that the Articles of Association are modified to allow a triennial mechanism for the revocation by members of any trustees not deemed to be acting in members’ interests, such trustees to include all Board members, not just UCU-nominated members.

The JEP should suggest that the Chair of the Board alongside its members should focus efforts on ensuring that it has the right policies, procedures, data, time and expertise to be able to operate collectively and effectively to protect beneficiaries’ interest.

Material changes to the culture of USS cannot come about without a significant change in the leadership of USS — both at executive and Board levels. Given the fact that the current Chair of the Board and the executive team, led by the GCEO, have presided over a period of serious failings in disclosures to, and consultations with, members, it would be helpful if the JEP recommended an overhaul of the chairing and executive team to allow for greater technical expertise and strategic commitment to the provision of a DB pension.

2. Reliance on independent third parties

Another area of serious concern is in relation to the conflicts of interest of the Scheme actuary. There is a serious danger that the executive is receiving technical advice from an actuarial provider with a broader vested interest in the manner of ‘de-risking’ espoused by the executive, and perhaps more generally by a move to DC or being converted to a master trust.

It is difficult to conceive a proper redressal of this issue due to the nature of conflicts of interest of many (if not all) key actuarial firms. In the absence of a well-funded National Actuarial Service to provide independent challenge on actuarial numbers for the largest pension funds, it would be useful to rotate Scheme actuaries on a regular basis to avoid cosy dealings with the executive.

3. Concluding remarks

Currently, the culture and governance of USSL are impeding it from delivering the quality of trusteeship expected of a fund of such scale and importance. All of the points outlined above call for serious changes in the leadership and oversight delivered by the Corporate Trustee. It would be helpful if the JEP, in its second phase, sets in motion the necessary steps for such a review to take place urgently to avoid further erosion in member trust and fund performance.


[1] The Pensions Regulator (TPR) avers that ‘Where the trustee is a company (known as a corporate trustee), the individual will be a director of that company and will have the same responsibilities as an individual trustee in relation to the scheme’.
[2] Thomas Clarke, International Corporate Governance: A Comparative Approach (Routledge, 2017).

This is a USSbrief, published on 31 March 2019, that belongs to the OpenUPP (Open USS Pension Panel) series. It has been submitted to the UCU-UUK JEP (Joint Expert Panel) by the author on 25 March 2019. 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 #USSbriefs70 and #OpenUPP2018; the author will try to respond as appropriate. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.




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