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Michael Otsuka @MikeOtsuka
, 20 tweets, 7 min read Read on Twitter
Now that @AlistairJarvis's @UniversitiesUK has opened the linked consultation, it's important for @ucu & #USS members to make the case to our employers to STRONGLY & PUBLICLY support all 4 JEP recommendations. Links below to arguments in support. 1/
ussemployers.org.uk/news/universit…
Embedded thread w/ arguments in support of JEP recommendation #2, re lowering of deficit recovery contributions. 2/
Embedded thread w/ arguments in support of JEP recommendation #3, re smoothing of cost of future service, which draws on @Sam_Marsh101's cashflow data analysis. 3/
JEP RECOMMENDATION #4--update to the most recent mortality data--is a no brainer. As UUK says, "it would be reasonable to regard this as not exposing employers to additional risk & simply a refinement for new data." But this reduces contributions by only 0.12%. 4/
JEP RECOMMENDATION #1 has two parts: (a) Reversion to September '17 delay of onset by 10 years of 'de-risking' shift to bonds. (b) Increase extent to which scheme assets can outperform a gilts+0.75 self-sufficiency portfolio. 5/
For a defence of #1(a) delay of de-risking by 10 years, see this blog: 6/
medium.com/@mikeotsuka/un…
That just leaves #1(b), which I'll discuss in the main thread below. #1(b) relates to the notorious Test 1. In order to be able to close the DB scheme by year 40, Test 1 requires that it be possible to purchase a bond-weighted self-sufficiency portfolio by then... 7/
...via supplementation of scheme assets via an increase of 7% — from the current 18% to the maximum affordable 25% of salaries — in employer contributions from years 20 to 40. 8/
The assets must reach a market value by year 20 that is sufficiently high that it is possible to get from there to self-sufficiency via such a 7% increase. 9/
JEP RECOMMENDATION #1(b) is entirely down to how much extra cash we can assume would be generated via +7% contributions in years 20-40. This depends on how much more it is assumed scheme members will be paid then versus now. 10/
#USS's current Test 1 assumption is that the average scheme member will be paid less in real CPI terms than today, taking into account promotions as well as negotiated pay increases. 11/
This, however, conflicts with #USS's own assumption that average pay will increase by CPI + 2% each year (taking account of promotions & average age of scheme members as well negotiated pay increases). 12/
In their Feb 2017 consultation, #USS expressed a willingness to assume CPI + 2%. Upshot = £19 bn would be generated by +7% & hence very little de-risking of assets over the next 20 years would be needed to satisfy Test 1. 13/
Had employers accepted CPI+2% plus assumptions of the Sept valuation, it would have been possible to retain the DB status quo via +1% employer & +0.5% member contributions, which is better than JEP's recommendations. See more details in this blog: 14/
medium.com/@mikeotsuka/uu…
Inexplicably & inexcusably, employers refused CPI+2% (=£19 bn) & instead embraced CPI+0% (=£13 bn). USS ended up saddling employers w/ CPI MINUS about 1% (=£10 bn). 15/
JEP says £10 bn is too low & suggests a move to CPI+2% (£19 bn): 16/
In the end, they recommend something more modest: CPI+0% (£13 bn). Given how much gratuitous trouble Test 1 is causing the scheme (see JEP critique of Test 1 👇), employers have overwhelming reason to unshackle themselves from it by endorsing the least restrictive parameters. 17/
Please see this blog post for an explanation of the extent to which #USS's current version of Test 1 amounts to recklessly prudent overkill. 18/
medium.com/@mikeotsuka/ho…
See also this thread by @Sam_Marsh101: 19/
In short, adoption of JEP RECOMMENDATION #1(b) relaxation of Test 1 shackles is a no-brainer UNLESS employers would like to continue to try to make the case that DB is too expensive and must close, and everyone should be shifted over to 100% individual DC. 20/20
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More from @MikeOtsuka see all

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In their new valuation #USS continues to make a "large and demonstrable mistake" in applying Test 1, which they now ineptly try to explain away by contradicting past statements (see embedded thread). 1/
JEP has made a strong case for funding existing DB & DC benefits at a lower contribution level than USS is calling for. 2/
But the regulator (tPR) is calling for an even more conservative valuation than the one #USS issued last week. 3/
Read 19 tweets
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#USS provides blinkered, inaccurate, exaggerated measures of risk in their consultation document, all three of which are tied to the gilt yield. More comments below. 1/
The first (see 5.4.1) is their measure of 'long term risk' in terms of their infamous Test 1 gap to 'self-sufficiency' in 20 year's time. Self-sufficiency is a gilts+0.75 portfolio. 2/
As I explain in this thread, it's only when they rewrite history by contradicting past statements that they are able to show a need to 'de-risk' into bonds in order to meet this test. 3/
Read 19 tweets
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🚨🚨🚨#USS contradicts itself in its latest attempt to answer the critique arising from @Sam_Marsh101's findings regarding expected asset level 20 years hence. See the following highlighted passage from p. 12 of the consultation document on the 2018 valuation: 1/
This parenthetical claim is an attempt to deny that they ever assumed that col 1 row 1 would equal col 2 row 1 in @Sam_Marsh101 graph below. 2/
But the record shows that #USS previously identified the target path as the expected path. See this highlighted statement from the transcript of @GuyCoughlan's video of May 2018: 3/
Read 12 tweets

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UPDATE on 2017 #USS valuation.

Universities UK has told me:
“Employers support the JEP’s recommendations, subject to acceptance from the USS Trustee and The Pensions Regulator, and to further information for employers on risk and its implications.”

1/
#UUK: ”We look forward to discussions with UCU, and with the USS Trustee, over the coming weeks as we seek a jointly agreed solution.”
2/2
#UUK has further clarified that employers support “all of the recommendations put forward by the panel” – subject to the conditions outlined in earlier tweeted statement.
Read 14 tweets
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*** ALL OF YOU WHO HAVE A #USS PENSION ***
#USS consultation ends TOMORROW 5pm. So important to convey to #USS & employers how you feel abt 2017 valuation. We at @USSbriefs have a template. Responding takes 5 mins #USSbriefs61 #ResileAndResubmit medium.com/ussbriefs/resi… 1/
(Re)read #USSbriefs59 on how @Sam_Marsh101's findings not only make a mockery of #USS valuation, but raise profound questions in relation to #USS & #UUK governance medium.com/ussbriefs/ther… 2/
And read @NJSHardy's v short thread on why employers' reflections on risk appetite in their responses to JEP are meaningless given they're based on Test 1 3/
Read 4 tweets
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Looks as though @etymologic was right: trying to find that 3rd person is a fool's errand #USS #Test1

@Sam_Marsh101's threads imply:
✅ Current use of Test 1 irremediably broken
✅ #NoDerisking #NoDetriment #NoDeficit
✅ Major governance questions for USS & UUK
#USSstrike 1/
We at @OpenUPP2018 @USSbriefs are collaborating with @Sam_Marsh101 this weekend to get his findings (and, crucially, their implications for current consultation & for #JEP phase 2) into #USSbriefs form so that they can be used by #UCU & #USS Scheme members ASAP 2/
We are all profoundly indebted to @Sam_Marsh101.

His efforts to acquire the necessary data from #USS (in the face of persistence resistance/reluctance) and then to analyse them to expose the car crash of Test 1, have taken over a year.

THANK YOU Sam. 🌿🍁🍃 #USSstrike
3/3
Read 3 tweets
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So with the publication of the #JEP, the issue of UUK consultations with employer institutions is back big time. Both the famous Sept 2017 survey – and now the possibility, if JEP recommendations are taken up, of UUK reassessing employers' appetite for risk.

I'm worried. 1/
#JEP has emphasised the problems with how UUK framed the questions. What's really obvious if you look back Sept survey is that all the focus is on risk and on a *reduction to benefits*. And NOT on the potential to increase contributions. Or on amending the technical provisions 2/
You can see the structure of the questions here, in Nottingham's response (one of the institutions that wanted less risk): whatdotheyknow.com/request/440685… 3/
Read 18 tweets
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Reading fhrough the Joint Expert Panel report and it is quite bruising for the #USS, #UUK and Pensions Regulator.

Key comments from the Executive Summary of the JEP report to follow:
Firstly, on the Trustees’ use of 3 tests to help assess contribution affordability. The Panel thought the Trustees gave “too much weight” to “Test 1” which was not being used as a “stop and check” reference point but “constraint” on benefit design and investment strategy. 1/
The Panel said that “insufficient weight” was given to the fact that USS was a large, open scheme that was cash flow positive. The “strength and diversity” of the HE sector appeared not to have been taken into account “in some areas”. 2/
Read 17 tweets
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IMPORTANT #USS UPDATE! Friday saw two big decisions made with big implications for the future of USS. One took place at UCU's HEC, the other at the UCU/UUK Joint Negotiating Committee. You need to be aware of what happened at both! READ ON... 1/ @JosephineCumbo @jgro_the
SECOND MEETING FIRST: the JNC agreed (yes, agreed!) to formally revoke the January imposition of a defined contribution scheme. This is an important moment! DC is gone, and not coming back. This makes concrete previous loose pledges from @AlistairJarvis & UUK. 2/
It is expected that #USS will now prepare to implement 'cost-sharing' to start in April 2019. This will leave benefits unchanged (at least up to the DC threshold), but will mean big contribution rises. See thread by @MikeOtsuka: 3/
Read 14 tweets

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