All entries for Monday 01 September 2014

September 01, 2014

USS is highly solvent – so why do the employers want to cut it?

The question USS members are asking is why, given that their pension fund is highly solvent by normal standards, they are being told by Anton Muscatelli, on behalf of the employers, that, on the contrary, it is deep in deficit.

The figures show that the USS is immensely profitable: the latest annual report and accounts show an income of £2,585.4 million and expenditure on pensions in payment of £1,462.0 million, leaving a massive net surplus to invest for meeting future needs of £1,123.4 million.

Of course these figures tell only part of the story, and one must allow for future demands resulting from demographic changes, growth in membership and so on – the job of actuaries. Nevertheless, they surely indicate that there is currently plenty of headroom, which raises the question to which members deserve an answer from Muscatelli: how does an annual surplus become a deficit? Can we please be told?

Instead of giving a clear picture of how the accounts are likely to change in the future, he just announces that there will be deficits, without explaining the basis of their derivation. He, rather disingenuously, hints at arguments but does not turn them into reasons when he says: “People’s longer life expectancies and the current global economic upheavals make these challenging times for pension funds…”

In fact, the evidence is that longer life expectancies are a significant but still relatively small factor that does not threaten the survival of the USS final salary scheme: it simply requires minor changes in the rules. “Global economic upheavals” is a term so vague it could mean anything: perhaps it is intended to make members believe that the investment returns have been unusually poor. But investment returns to the USS compare well with the rest of the industry, and the fund’s assets have grown – so that cannot be the source of his growing deficit.

Muscatelli’s figures are smoke and mirrors. His is a flawed methodology for a number of reasons. And one of the most important, which Muscatelli does not mention, is the fact that the new methodology does not count income from contributions (£1,539.6 million – enough for all the pensions in payment).

Up until now the USS, like other pension schemes, has worked perfectly sustainably as a collective fund on a money-in-money-out basis. But this principle is now to be banned for reasons that can only be described as ideological: because it is collectivist.

Dennis Leech
Professor of economics
University of Warwick

This is the text of my letter as published in the Times Higher Education on 31 July 2014 (

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