🚨🚨🚨Link to @Sam_Marsh101's well-documented, sound & explosive addendum to his JEP submission, which reveals a serious failure on the part of #USS to apply Test 1 properly, in a manner that makes sense of its underlying rationale: 1/
medium.com/ussbriefs/adde…
medium.com/ussbriefs/adde…
Recall my earlier "FALSE PROSPECTUS" tweet on Sam's findings: 2/
This thread links to various #USS documents that spell out Test 1's rationale as follows: the gap between the value of the *ASSETS HELD BY THE SCHEME* & the assets required to purchase a low-risk self-sufficiency portfolio must not become too great. 3/
This rationale for Test 1 is clearly spelled out, e.g., on p. 40 of the Sept 2017 consultation document: 4/ 
What Sam shows is that, BY #USS's OWN PRUDENT PROJECTIONS, the gap between the assets and the cost of a self-sufficiency portfolio will be well within the limits of Test 1, and hence NO 'DE-RISKING' OF THE ASSETS is required in order to satisfy that test. 5/
I should really say no FURTHER 'de-risking' of the assets is required. As this graph shows, and as I explain in more detail in the linked thread, #USS has already engaged in extensive asset 'de-risking' in recent years: 6/
In other words, #USS can remain invested, for the long term, in its current portfolio, which is "broadly half in equities, one-third in bonds and the balance in infrastructure, property and other assets" (link). 7/
uss.co.uk/how-uss-is-run…
uss.co.uk/how-uss-is-run…
Once the (further) de-risking is cancelled, the deficit as of 31 March 2017 reduces from £7.5 bn to almost nothing (£0.4 bn), by Sam's calculations, which, as he mentions, #USS has confirmed as in line with their own calculations.
(ALMOST) NO DEFICIT!
8/
(ALMOST) NO DEFICIT!
8/
Deficit on past accrual is not all that matters. Cost of future service also important. But Sam rightly notes that cancel de-risking & "The future service costs would be significantly lower than the rates stated by USS: most likely, no increases would be necessary at all." 9/
In fact, even with a very modest lowering of the cost of future service, it would be possible for #USS to continue to provide current benefits at the current 18% employer & 8% member rate of contributions. Here's why: 10/
No deficit = no deficit recovery contributions (DRCs). Eliminate 6% DRCs & employer contribution drops from 24.9% to 18.9%. (See graph from consultation document.) Modest reduction of future service from 17.2% to 16.3% reduces employer contribution to status quo 18%. 11/
𝗨𝗣𝗦𝗛𝗢𝗧: If only #USS would properly apply Test 1, in conformity with its rationale as stated in their numerous consultation documents, there would be no case for any cuts to benefits or increases in contributions. 𝗡𝗢 𝗗𝗘𝗧𝗥𝗜𝗠𝗘𝗡𝗧! 12/12
𝗧𝘄𝗼 𝗔𝗱𝗱𝗲𝗻𝗱𝗮 𝗯𝗲𝗹𝗼𝘄 𝘁𝗼 𝗺𝘆 𝘁𝘄𝗲𝗲𝘁𝘀 𝗼𝗻 𝗦𝗮𝗺'𝘀 𝗔𝗱𝗱𝗲𝗻𝗱𝘂𝗺:
𝟭𝘀𝘁 𝗔𝗱𝗱𝗲𝗻𝗱𝘂𝗺: Sam writes the following in his Addendum: 1/
He should have said something stronger: "𝗦𝗶𝗻𝗰𝗲 𝗨𝗦𝗦 𝗱𝗲𝗳𝗶𝗻𝗲𝘀 the reliance on covenant metric to be the self-sufficiency valuation less the 𝑝𝑟𝑢𝑑𝑒𝑛𝑡𝑙𝑦 𝑝𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑎𝑠𝑠𝑒𝑡𝑠,..." 2/
See my above tweet, embedded here, for documentation that this is already how #USS defines reliance: 3/
Rather than anything revisionary, @Sam_Marsh101 is merely calling on #USS to apply Test 1 correctly 𝗯𝘆 𝘁𝗵𝗲𝗶𝗿 𝗼𝘄𝗻 𝗹𝗶𝗴𝗵𝘁𝘀, rather than in their current blinkered fashion which ignores asset growth. 4/
𝟮𝗻𝗱 𝗔𝗱𝗱𝗲𝗻𝗱𝘂𝗺: Please also recall the implications of Sam's analysis that I draw in this blog post: 5/
medium.com/@mikeotsuka/us…
medium.com/@mikeotsuka/us…
I.e., #USS failed to make clear the high level of prudence of the September valuation. This raises new doubts over consultation, as USS did not explain, and employers did not understand, that protection against gilt yield risk was already built in. 6/6
