Thread by @MikeOtsuka

Further confirmation of #USS's "large and demonstrable mistake" regarding Test 1. See this chart prepared by @Sam_Marsh101 for Sheffield's USS Working Group. The important figures are in row 1. 1/

See now for a clear statement by @GuyCoughlan, #USS's Chief Risk Officer, that Test 1 is supposed to test whether the gap between columns ONE and 3 of row 1 is not too large. 2/

"...when we add in future expected returns, plus future contributions..."

👆That is exactly what the figure in column ONE of row 1 does! /2

"What Test One does is ensure that when we add in future expected returns, plus future contributions, the distance between that total and the level of self-sufficiency is something we can get to with contingent contributions from the employers." 3/

👆This is a reference to the distance between column ONE and column 3 of row 1. 4/

“If that distance is close enough then we are comfortable that we are in the risk appetite of the trustee." This is because Test 1 "is designed to ensure that we never get too far away from" the "safe harbour" of self-sufficiency. 5/

According to #USS, this distance must be less than or equal to £10bn. The gap between column ONE and 3 is ≤£10bn. (This remains the case even when column ONE is adjusted downward by 5% to conform to #USS's confirmed figure.) 6/

Hence, Test 1 is ALREADY SATISFIED, without any increase in contributions beyond the current 26% or any de-risking of the current portfolio. Therefore, if #USS is to be taken at its word, we should now be "comfortable that we are in the risk appetite of the trustee". 7/

(#USS's "large and demonstrable mistake" was to falsely assume that column 1 & would be equal to the value they had calculated for column 2 and then to conclude that the scheme failed Test 1 because the gap between columns 2 & 3 of row 1 exceeded £10bn.) 8/

#USS's response should be: GREAT! Test 1 is satisfied! So it turns out that we're within our risk appetite, because we're within reach of our safe harbour after all. No need to increase contributions by £900 million per year, in order to retain existing benefits. 9/

Instead, the response of #USS execs has been: OH SH*T, WE SCREWED UP! To save face, we must quickly appeal to DIFFERENT arguments in order to try to justify the steep Rule 76 hike in fees on which members are now being consulted. 10/

But, as @TomPike00075908 (who is a proper scientist and a Professor at Imperial College) nicely puts it in my linked blog post, "that's moving the goal posts!": 11/
medium.com/@mikeotsuka/te…

We see that the proposed £900 mn increase in contributions can no longer be justified as necessary to keep within the trustee's risk appetite. We're already within these limit, given the security of the safe harbour. 12/

If, therefore, despite linked calls to #ResileAndResubmit & suspend the consultation, #USS presses ahead with its call to increase contributions by £900 mn, that will not be in order to protect the interests of scheme members. 13/
medium.com/ussbriefs/resi…

Rather, it will be to save the faces of the #USS execs. £𝟵𝟬𝟬 𝗺𝗻 𝗶𝘀 𝗼𝗻𝗲 𝗵𝗲𝗹𝗹 𝗼𝗳 𝗮 𝗹𝗼𝘁 𝗳𝗼𝗿 𝘁𝗵𝗲𝗺 𝘁𝗼 𝗰𝗵𝗮𝗿𝗴𝗲 𝘂𝘀, 𝗷𝘂𝘀𝘁 𝘁𝗼 𝘀𝗮𝘃𝗲 𝘁𝗵𝗲𝗺𝘀𝗲𝗹𝘃𝗲𝘀 𝗳𝗿𝗼𝗺 𝗵𝗮𝘃𝗶𝗻𝗴 𝘁𝗼 𝗮𝗱𝗺𝗶𝘁 𝘁𝗵𝗲𝗶𝗿 𝗲𝗿𝗿𝗼𝗿. 14/14

🚨I've just had a look at this slide 👇which accompanies the words of @GuyCoughlan from the transcript of the video that I quote above. It makes CRYSTAL CLEAR the nature and magnitude of #USS's error. 1/

The slide makes clear that "future expected returns, plus future contributions" refer to the blue bands of the left-hand "Assets" column. Those two bands on top of "Investments" in the Assets column together comprise the figure in column ONE of row 1. 2/

It is also clear from the graph that #USS assumed that columns 1 & 2 of row 1 would be equal, since the red "Technical Provisions" bar, which corresponds to column 2 of row 1, is set at the same height as the 3 elements that together make up column 1 of row 1. 3/

We see, however, from @Sam_Marsh101's Sheffield chart that column 1 is MUCH GREATER THAN column 2 of row 1. 4/

Here is a link to the video and the transcript. It's the one called "A technical overview of the 2017 valuation". See minutes 25-27 for a discussion of Test 1 and the above slide. 5/
uss.co.uk/how-uss-is-run…

As @GuyCoughlan says in the script of the video: "Test One is a very important test in the valuation..." Indeed. Since they got such an important test so wrong, #USS cannot try to carry on with the current consultation as if NOTHING HAS CHANGED. 6/6

👆@UniversitiesUK @ucu @AlistairJarvis @JoanneSegars @SallyBridgeland @Sam_Marsh101 @Flibitygibity @carlomorelliUCU @HershMarion @Dennis_Leech @DaveGuppy @UofGVC @RedActuary @Derek_Benstead @kevinwesbroom @GuyCoughlan @USSbriefs @JosephineCumbo @henryhtapper

I have now prominently added a link to the more readable thread reader app version (linked below) of this tweet thread, via the following update that I have placed at the top of my two main blog posts on #USS's "large and demonstrable mistake":
threadreaderapp.com/thread/1056461…

Please see this sub-thread for an attempt to answer David Papineau's question why is "USS so a priori dedicated to finding arguments against defined benefits?"

https://twitter.com/MikeOtsuka/status/1056800814365319168