All entries for Monday 04 November 2013

Need for better reporting of Pension Schemes such as USS

The recent sensational 'revelations' by BBC Newsnight (repeated on Radio 4) of a 'massive black hole' in the finances of the University Superannuation Scheme points to the urgent need for better reporting by occupational pension schemes in general. The report and the studio discussion took the figures based on the efficient markets hypothesis (surely by now utterly discredited in the wake of the 2008 Crash and numerous other failures) as evidence the scheme is in deficit.

What was particularly worrying was that none of the experts explained why the liabilities were supposed to have increased by an incredible 14.6 percent in one year; the formula used for the liabilities makes it more a reflection of macroeconomic factors, particularly low gilt rates, than anything inherent in the circumstances of the scheme. Remember that the pensions are defined by the rules of USS and nothing else - so if gilt rates are low that does not change the liabilities.

What members of DB pension schemes such as the USS deserve to know is whether the scheme's finances are adequate to meet the pension promises they have made. They are entitled to receive an annual report that indicates whether the income received into the scheme from members' and employers' contributions, together with earnings from investments, will be sufficient to meet the pensions obligations, taking into account all the technical assumptions about longevity, etc, and allowing for the expected lifetime of the fund (which in many cases such as the USS might reasonably be considered infinite).

Providing such sensible and interpretable accounts should not be beyond the competence of the professional actuaries and accountants who currently provide the highly misleading funding figures. There is no reason why they should not provide this in addition to the balance sheet items of assets and liabilities required by the accounting standards. As it is, at the moment, we are in the dark.

Dennis Leech : 04 Nov 2013 22:28 |  Comments (0) |  Close comments |  Report a problem