The USS deficit is primarily about ideas more than money

The USS dispute is primarily a matter of ideas and ideology rather than simply money. The deficit - a hypothetical monetary magnitude - depends fundamentally on what is assumed about the future of higher education, specifically that part of it in the pre-92 sector.

This has been shown in many of the employers' individual responses to the UUK consultation (including Warwick, LSE, Imperial, Cambridge, Essex, Aberdeen, Oxford) that the deficit is only as large as the trustees claim it is because they are making assumptions that are far too pessimistic. And the letter a group of leading actuaries wrote to the trustees showing that there may not even be any deficit at all if the right - while prudent - assumptions are made.

But the most significant demonstration of this of all is the report by First Actuarial, prepared for the UCU, that focused on the central role in the valuation of the key assumption concerning the future of higher education itself.

They showed in effect that if the pre-92 university sector is assumed to have a future - not unreasonable one would think - such that its pension scheme the USS has an ONGOING BASIS (rather than the limited period of only15-20 years secure lifetime assumed by the trustees) then the deficit could well turn out to be negligible if only the accounting could be done on this basis. The report is a comprehensively researched and carefully argued study (and the only one that bases its analysis on projected income and expenditure estimates for the indefinite future).

The deficit is therefore ideological in essence.

The trustees (led by USS chief executive Bill Galvin) are following a different ideology and are manipulating the deficit accordingly by making overly prudent assumptions. They have assumed too high salary growth, too much inflation, overestimated increases in longevity, underestimated economic growth and assumed that very low interest rates will continue indefinitely. If there is a pessimistic assumption that can be made the trustees have made it. Some of their assumptions are contradictory (such as very rapid salary growth combined with continuing recessionary conditions). By making appropriate assumptions about future trends there is enormous scope to find there is a deficit if that is what you are looking for. Or not. Such is the power of compound interest!

That begs the question: what has changed since the scheme was supposed to have been sorted out in 2011 when the recovery programme was implemented. It can hardly be true that life expectancy has increased since then, and economic growth has resumed, salary growth stagnated, inflation fallen.

The big change is that the government has withdrawn. The USS originally had a trustee representative of the funding councils, alongside those representing UUK, UCU and independents. When the scheme was set up the assumption was that the government via HEFCE could act as guarantor. And it was at that time axiomatic that these universities would pretty much continue to exist indefinitely and therefore the pension scheme would have an ongoing basis. The government seat was abolished by the coalition, presumably as part of the marketisation madness of David Willetts; and that far-reaching constitutional change was made with a minimum of fuss, its announcement being buried away in the 2012 report and accounts as a fait accompli. It was not even mentioned in the chairman's report.

So the USS now finds itself as a pension scheme for a group of institutions operating in a market, the future nature of which they know nothing about, and this uncertainty is the source of the deficit figures. We can say that the deficit is a result of the government's marketisation obsession together with the ideology underlying the valuation methodology preferred by the trustees.

The trustees' deficit is not money that is having to be paid. In fact the scheme is not in deficit in the ordinary sense: it makes a large surplus every year of over a billion pounds which is invested long term. The trustees' deficit is an idea.

Dennis Leech : 20 Jan 2015 20:18 |  Tags: Pensions Uss; |  Comments (0) |  Report a problem