Thread by @MikeOtsuka

With all of the USS news about cost-sharing and the shrinking FRS 102 accounting deficit, there is a blog from Bill Galvin (linked) that was posted today which appears to have gone unnoticed. Some comments below. 1/

uss.co.uk/how-uss-is-run…

Galvin writes: "It has been alarming, therefore, to see the confusion, concern and distrust that some of the commentary has generated amongst our members." 2/

This is followed by a sentence in which he says they'll need to communicate more clearly. But then, somewhat surprisingly, comes this: 3/

"We will therefore review our process for the valuation with employers, particularly the early discussions regarding their risk appetite and capacity." 4/

I think this is probably a reference to this linked USS statement, following the September 2017 consultation, which contains the following inflammatory claim: 5/

uss.co.uk/how-uss-is-run…

"A small majority of employers (53%) accepted the level of risk proposed, with many qualifying that the proposals were at the very edge of what would be acceptable, and a significant minority (42%) of survey respondents wanted less risk to be taken – ..." 6/

"...including some of the very largest employers. Just 5% of employers indicated that the trustee should consider taking more risk." 7/

Here are my own reactions, to which this statement gave rise, in a series of blog posts: 8/

medium.com/@mikeotsuka/yo…

9/
medium.com/@mikeotsuka/th…

10/
medium.com/@mikeotsuka/do…

The above posts were my reaction to @UniversitiesUK's decision to plunge the DB scheme into crisis by rejecting the level of investment risk that USS had proposed in their September valuation. And these were all before I learned of the following: 11/

Namely, how brazen a distortion the following claim was: "...and a significant minority (42%) of survey respondents wanted less risk to be taken – including some of the very largest employers." 12/

Since I learned that a third of these 42% consisted of the many of the smallest employers, namely double-counted Oxbridge Colleges, whose bursars had acted in concert with Oxbridge university officials to try to undermine the DB scheme. 13/

The following blog post about this went viral, eventually receiving 34,000 views: 14/

medium.com/@mikeotsuka/ox…

Here are subsequent Oxbridge posts: 15/

medium.com/@mikeotsuka/ca…
medium.com/@mikeotsuka/th…
medium.com/@mikeotsuka/ca…

I'll stop here for now. Perhaps more thoughts later...

An amendment to '11/' above. There I write: "...to @UniversitiesUK's decision to plunge the DB scheme into crisis by rejecting the level of investment risk that USS had proposed..." 16/

.@UniversitiesUK didn't formally reject the level of investment risk. How could they, given that a majority (53%) of employers who responded said it was acceptable? Rather, they voiced numerous concerns about the proposed level, thereby prompting USS to revise it downward. 17/

Moreover, @UniversitiesUK never called for a reversion to the level of risk that USS had proposed in September, after USS revised that level downward in their November revision of the valuation in response to the various concerns that UUK had raised. 18/

Some individual employers, however, did call for such reversion. E.g., LSE: "We would urge UUK to work with UCU to revert to the earlier valuation of the pension scheme set out in September 2017 by USS." 19/

…conomicscommunications.newsweaver.com/flyer/10l5b9a7…

See this linked blog post for what a reversion from the November to the September valuation amounts to and why at least the September (rather than the lower November) level of investment risk is justified: 20/

medium.com/@mikeotsuka/un…

In fact, the current crisis traces back to an earlier decision by @UniversitiesUK regarding investment risk, in their response to a February 2017 consultation, when UUK refused to accept the maximum level of investment risk USS was willing to propose back then. 21/

Had @UniversitiesUK accepted this February level, then it would have been possible to retain the status quo (minus the match), by means of a 1% increase in the employer contribution from 18% to 19% and a 0.5% increase in the employee contribution from 8% to 8.5%. 22/

Instead, having already induced a £5.1 bn September deficit & a steep increase in the cost of future accruals through their earlier February embrace of an overly restrictive & incoherent interpretation of an already ill-justified & self-defeating Test 1 measure of risk... 23/

.@UniversitiesUK pushed the valuation in the more conservative November direction via their response to the September valuation. And that is why we are now faced with a 10.6% increase in contributions as of April 2020, rather than a mere 1.5% increase. 24/

Here, hot off the press, is a new blog post in which I explain why "UUK should now endorse the level of investment risk USS was prepared to accept in February 2017". 25/25

medium.com/@mikeotsuka/uu…

PS: In this linked tweet, @felicitycallard says that we should "Expect a discourse [from employers in the autumn] in which pay is pitted against pensions". 1/

https://twitter.com/felicitycallard/status/1022422514063077378

We need, therefore, to constantly remind employers that there is a third variable: namely, the level of investment risk they're willing to accept. The notorious September UUK consultation made this explicit: 2/

The 42% who called for lower risk selected this answer to Q 3(a), which @UniversitiesUK had worded precisely as follows: "My institution wants less risk to be taken, acknowledging the implications this might have for the benefits and/or costs". 3/

The upshot was that the cost of maintaining the DB status quo rose from +5.8% contributions to +10.6% contributions. 4/

And this was on top of their previous failure to endorse the level of risk USS was willing to accept in Feb 2017, which had raised the cost of maintaining the DB status quo from +1.5% to +5.8%. 5/

So it's a zero-sum contest between pensions and pay (including payroll pensions contributions) only if we hold constant @UniversitiesUK's repeated failure fully to embrace the level of investment risk USS was willing to propose. 6/6