Thread by @MikeOtsuka

#USS’s obsession with short term risk and reliance, plus legally enforceable triggers, can be fairly directly traced to tPR’s linked 2017 DB annual funding statement, which was released in May 2017. 1/
thepensionsregulator.gov.uk/-/media/thepen…

From statement: "All schemes need to put contingency plans in place in the event a downside risk materialises. Schemes that hedged their interest rate risks [MO: i.e., SAUL, but not USS] will generally have fared better than those that did not over the last three years...." 2/

"...Where schemes now find themselves in a worse funding position than anticipated, we expect them to implement their contingency plans, which should involve taking appropriate action to recover their funding position and to mitigate against any further downside events." 3/

"Trustees need to have a contingency plan in place detailing actions they would need to take to correct the scheme’s position in the event of a downside risk materialising. This is particularly important for trustees who decide to continue to run significant risk levels...." 4/

"...This contingency plan needs to be agreed with the employer in advance and should be legally enforceable." 5/

tPR’s 2016 statement did not, by contrast, push for these things. Interestingly, tPR’s 2018 statement is more relaxed about these things than the 2017 statement, which may help explain why USS has decided to issue a new 2018 valuation. 6/

Re 2/ above, pressure from tPR to impose automatic triggers stems from #USS's failure to hedge interest rates in 2016-17. See this unfavourable contrast with SAUL, from my linked blog post: 7/
medium.com/@mikeotsuka/wh…

As @FirstActuarial notes in their linked paper, #USS exec's deference to the views of tPR provides evidence that they are not serving the interests of employers and members. 8/
ucu.org.uk/media/9971/Fir…

See also this, from FA's report, re tPR: 9/

As I say here, re Bill Galvin: 10/

https://twitter.com/MikeOtsuka/status/1056805224256561152

See, finally, this from FA's report, which sheds much light on the source of #USS's perennial enthusiasm for hiking our contributions and pushing the portfolio into bonds. 11/11

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