Letter claims, contrary to PWC, EY, and #USS, that the employer covenant is merely 'tending to strong', rather than 'strong'. They appeal to Brexit & Augar tuition fee review as reasons for pessimism. 1/
But EY and PWC have, of course, already considered Brexit and the Augar review, in coming to their conclusion that the employer covenant is 'strong', not 'tending to strong.' 2/
tPR letter also casts doubt on analysis of modesty of growth in size of scheme relative to sector, which is contained in Annex 7 of the JEP report. 3/
tPR writes: "Although some high level analysis has been completed, we expect USS together with UUK to undertake detailed sensitivity and scenario analysis around the potential future development of the Scheme and sector scale." 4/
But the analysis of growth in the size of the scheme relative to the sector contained in the Annex of the JEP report involves not only high level sensitivity analysis, but also a lot of detailed work. 5/
tPR says the following, about the Rule 76 valuation on which #USS recently consulted, which would ultimately involve a 10.6% increase in contributions, and is based on the pessimistic Nov 2017 valuation assumptions: 6/ 
In other words, @TPRgovuk says adjustments to the 2017 valuation involving an increase in the level of investment risk will need to be accompanied by automatic triggers of higher contributions in the event that the scheme's funding position turns out worse than expected. 7/
So @TPRgovuk's letter is mainly grim reading for scheme members. But here is a silver lining: 8/
The above quoted para 13 ties automatic triggers of higher contributions to a greater than anticipated increase in the scheme's DEFICIT. This link to the deficit is repeated here: 9/
This is significant because past statements from #USS have suggested that automatic triggers be linked, not to an increase in the technical provisions deficit, but rather to a Test 1 informed increase in 'reliance on the covenant', measured as gap to self-sufficiency. 10/
Test 1 and the accompanying measure of reliance is mentioned in @TPRgovuk's latest letter. But it is now de-emphasised in para 35 as "only one of a number of factors to consider, so the Trustee should attach the appropriate weight to it": 11/
👆Para 36 does speak of 'pre-agreed actions should the level of reliance of the Scheme on the sector exceed the Trustee’s tolerance levels'. But it doesn't state that such actions must involve triggers of an increase in contributions. 12/
Such hard triggers of a contribution increase are only explicitly tied to a greater than anticipated increase in the DEFICIT. So this leaves open the possibility that a greater than anticipated increase in the reliance gap might be handed in other ways: 13/
One possibility might be a change in investment strategy. Here's one suggestion: JEP recommends that the proposed de-risking of the portfolio into bonds be delayed for 10 years. This matches #USS's original suggestion of such delay in their Sept 2017 consultation document. 14/
#USS's proposed delay was based on their forecast of a greater than market forecast reversion to 2014 levels in the gilt yield over the next 10 years, as quantitative easing is eliminated. 15/
If, however, the gilt yield does not revert as #USS has forecast during the next 3 years, that might trigger a pre-agreed bringing forward of the start date (from year 10) of the de-risking into gilts, rather than an increase in contributions. 16/
Re greater than anticipated increase in the DEFICIT as trigger for contribution increases, it's crucial that the measure of the deficit be based on #USS's planned shift from a 'gilts plus' to 'best estimate minus' method of monitoring scheme funding level between valuations. 17/
In this blog post, I say more about the importance of this planned shift from a 'gilts plus' to 'best estimate minus' monitoring: 18/18
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