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Thoughts on how difficult it will be for @ucu & @UniversitiesUK to reach an acceptable settlement under #USS's latest valuation. 1/
JEP recommended adjustments to the 2017 valuation which would make it possible to preserve existing DB & DC benefits (minus the 1% match) via +2.1% employer & +1.1% member contributions. 2/
JEP recommended that these contribution rates not be conditional on any automatic triggers of higher contributions if the funding level deteriorated between now and the next triennial valuation. 3/
#USS rejected call to apply these adjustments to 2017 valuation & instead agreed to consider application of such adjustment to an updated 2018 valuation. 4/
Given asset growth, increase in expected returns & decrease in longevity, #USS calculated that an application of all JEP adjustments to an updated 2018 valuation would result in scheme surplus and a contribution rate slightly less than current 26%! 5/
#USS, however, rejected two key JEP adjustments: delaying 'de-risking' shift to bonds by 10 yrs & smoothing rate of future service over 6 years. 6/
Having rejected these, the cost of retaining status quo DB & DC (minus 1% match) rises to +3.7%: +2.4% employer, +1.3% member if split 65:35. 7/
If #USS had stopped at these two rejections, it would, I think, have been relatively straightforward for UCU & UUK to reach an agreement to retain status quo benefits for the next 3 years, at +2.4 employer, +1.3% member. 8/
But #USS has thrown a spanner into the works by making +3.7% conditional on acceptance of automatic triggers of higher contributions if financial conditions deteriorate. 9/
As noted above, this is contrary to what JEP recommended. 10/
#USS haven't specified trigger of higher contributions but have suggested short term gap to self-sufficiency -- the difference between the value of the assets in the scheme and the cost of purchasing a gilts+0.75 portfolio -- becoming too large. 11/
In this blog, I explain why such short term reliance gap is an arbitrary & unreasonable trigger. 12/
medium.com/@mikeotsuka/au…
medium.com/@mikeotsuka/au…
If employers reject such an arbitrary trigger (& reject other means of providing security, such as negative asset pledge), the cost of continuing to provide existing benefits rises to +7.7% (+5% employer, +2.7% member if 65:35). 13/
Interestingly, on p. 20, #USS says the maximum trigger contribution would be no greater than +7.7%. Hence, however arbitrary & unjustified the trigger, it would not put employers in a worse condition than if they had rejected triggers altogether. 14/
This features makes it rational for employers to opt for automatic triggers, since the mere possibility of +7.7% contributions dominates the certainty of such a rise. 15/
What it then comes down to is how likely it is that higher contributions up to +7.7% (+5% employer, +2.7% member) would be triggered, and how tolerable that risk would be, against a baseline of +2.4% employer, +1.3% member. 16/
In an early December statement, @UniversitiesUK offered the highlighted sound grounds 👇for rejecting such automatic triggers as gratuitous. 17/ 
#USS, however, is adamant 👇 that automatic triggers (or other contingent support such as negative asset pledges) will be necessary, as a condition of accepting +3.7% rather than +7.7% contributions now. 18/
Moreover, tPR is also insisting on automatic triggers. See this passage from their latest letter👇. 19/
Plus this passage 👇. 20/
But see also this thread for suggestions as to how it might be possible to arrive at sensible triggers that conform to tPR guidance. 21/21
