In their new valuation #USS continues to make a "large and demonstrable mistake" in applying Test 1, which they now ineptly try to explain away by contradicting past statements (see embedded thread). 1/
JEP has made a strong case for funding existing DB & DC benefits at a lower contribution level than USS is calling for. 2/
But the regulator (tPR) is calling for an even more conservative valuation than the one #USS issued last week. 3/
tPR maintains that, for a given covenant strength, there's a limit to margin above the gilt yield they'll find acceptable as a discount rate. tPR also remains unconvinced that the covenant is strong rather than tending to strong. 4/
USS's 2017 Rule 76 valuation is equivalent to gilts+1.2%. tPR says even this is higher than they find acceptable for a 'tending to strong' covenant, though they won't object to its submission in February. 5/
USS's new 2018 valuation is a bit over gilts+1.4%. That is apparently at the limit of what tPR would consider acceptable for a strong covenant, even if accompanied by automatic triggers of higher contribution if funding deteriorates. 6/
So USS is offering some resistance to tPR, since they’re prepared to submit a valuation at the limit of what tPR says would be acceptable for a strong covenant, even if, as seems likely, tPR remains unconvinced of strong rather than tending to strong. 7/
If, however, all JEP recommendations are accepted, the discount rate rises to roughly gilts+1.65, which is apparently significantly above what tPR would find acceptable for even a strong covenant, let alone tending to strong. 8/
So it seems USS would need to act in clear defiance of tPR in order to accept all JEP recommendations. Given that fact, I don't see how it will be possible, except at the margin, to improve on USS's valuation via incorporation of more JEP adjustments. 9/9
🚨🚨🚨I've learned that my conclusion in /9 above was too pessimistic. Explanation in tweets below. a/
Here is the list of all of the JEP recommended changes to the valuation. #USS accepts all but the highlighted #6 & #7. b/ 
#USS notes below 👇that 'incorporating changes 1 to 7 is significantly above the benchmark' that tPR uses. c/
But #USS fails to note that, of their two rejected changes 6 & 7, it is ONLY 6 (delaying de-risking) that drives up the graphed discount rate of TP liabilities on past accrual. Change 7 makes no difference to this discount rate. d/
#7 increases discount rate for FUTURE SERVICE. But, as #USS notes in the Feb 2017 document 👇, tPR allows best estimate discount rate here & "it is possible to set future contribution rates using assumptions that are less prudent than those used to calculate liabilities". e/
USS's valuation does not indicate how much the smoothing of #7 would decrease the cost of future service. But, in Annex 10 of the JEP @Aon_plc calculated that this would reduce future service contributions by 1.5%. f/
Even if #USS accepted smoothing over only 3 yrs (this valuation cycle), rather than JEP-recommended 6 years, that should be sufficient to bring the overall contribution rate down by at least 0.5%: so down to JEP-modelled +3.2% rather than +3.7%. g/
.@UniversitiesUK & @ucu should jointly make a strong case for acceptance of smoothing over at least 3 years. They can draw on pp. 3-4 of this @FirstActuarial paper 👇 in making this case. h/h
ucu.org.uk/media/8705/Pro…
ucu.org.uk/media/8705/Pro…
