Thread by @MikeOtsuka

In his linked blog post on the new valuation, #USS CEO Bill Galvin offers the following accurate account of @ucu's actuary @FirstActuarial's approach to the valuation of the DB scheme: 1/
uss.co.uk/how-uss-is-run…

Galvin's response to @FirstActuarial's approach is to note (1) that #USS relies on return-seeking assets to fund DB pension promises, but (2) it needs to control the risks of returns on such assets falling short of what is necessary to cover these promises: 2/

The need identified in (2) is genuine. It must be met. Here, without mentioning it by name, Galvin explains that #USS has adopted Test 1 (T1) to meet this need: 3/

But @Sam_Marsh101 & I have shown (see link) that, on #USS's own understanding of reliance on covenant that T1 measures, the current return-seeking portfolio satisfies T1. So there's no T1-based call to de-risk out of return-seeking assets & into bonds. 4/
medium.com/@mikeotsuka/te…

In saying, in their linked 16 Oct reply to @Sam_Marsh101 & me, that "Dr Marsh’s analysis is not wrong in isolation", #USS implicitly acknowledged that point I make in 4/ 👆. 5/
uss.co.uk/how-uss-is-run…

For this reason, #USS has shifted its focus away from T1, which measures the gap AT YEAR 20 between return-seeking assets & assets required for bond-weighted self-sufficiency portfolio. 6/

#USS's focus is now on the CURRENT gap (aka short-term risk & reliance) between level of existing return-seeking asset portfolio & assets required for a bond-weighted self-sufficiency portfolio. 7/

#USS, however, has failed to show why this current gap should be a matter of concern. Why should it matter that we can't now afford to do what we have no reason to do? See this embedded tweet & tweets below: 8/

https://twitter.com/MikeOtsuka/status/1065637063310086145

It appears, moreover, that #USS is channelling tPR's concern re short-term risk & reliance, in a manner contrary to the interests of scheme members & employers. See embedded tweet thread: 9/

https://twitter.com/MikeOtsuka/status/1065681494956494850

T1 has received, & not fared well in the light of, enormous scrutiny, from @FirstActuarial, @Sam_Marsh101, the JEP, and me among others. It is time to turn the spotlight on #USS's latest concerns over short-term risk & reliance. 10/

The actuaries for BOTH the union (@FirstActuarial) & employers (@Aon) have each pressed strong criticisms against #USS's call for automatic triggers between valuations in the event that the short term gap to self-sufficiency becomes too great. 11/

Before #USS scuppers JEP's proposed solution, by imposing unreasonable & onerous requirements of automatic triggers or asset pledges as their condition for accepting JEP's proposals, they must explain the following: 12/

What good grounds do they have for their claim that, if the current gap to self-sufficiency becomes too great, then the scheme won't be able to reduce to the required reliance gap in 20 years time that T1 is supposed to measure (see embedded tweet)? 13/

https://twitter.com/MikeOtsuka/status/1065638909856686080

.@Sam_Marsh101 & my critique of T1 is highly relevant to /13 above👆. This is because Sam's modelling has shown that the #USS reliance gap at yr 20 is much less than is indicated by T1. 14/

Therefore #USS's mistake regarding the yr 20 gap is not, after all, such an isolated error. Rather, it directly bears on #USS's case for the need for automatic triggers if the current gap to self-sufficiency becomes too large. 15/15

👆@USSEmployers @ucu @AlistairJarvis @JoanneSegars @SallyBridgeland @Sam_Marsh101 @Flibitygibity @carlomorelliUCU @HershMarion @Dennis_Leech @DaveGuppy @UofGVC @RedActuary @Derek_Benstead @kevinwesbroom @GuyCoughlan @USSbriefs @JosephineCumbo @markmleach @stianwestlake

NB: The fact that #USS’s measure of short-term reliance is in terms of ASSETS--it's the gap between the ASSETS currently held & the assets required to purchase a self-sufficiency portfolio--adds to the relevance of @Sam_Marsh101 & my critique of Test 1 to USS's case for triggers.