June 05, 2015

USS attacks 'mark to market' accounting rules

The USS has criticised the government-imposed accounting rules for pension schemes. Kathryn Graham, USS’s head of strategy coordination, has said the current, so-called 'mark-to-market', rules prevent funds like the USS from investing in long-term infrastructure projects. This both limits pension schemes' investment opportunities and also harms the wider economy by discouraging much needed long-term investment.

She argues that pension funds in other countries such as Canada and Australia, that use different accounting rules that allow for smoothing, give them an advantage so that they are invested in much more long-term infrastructure.

This is of course an effect of the 'contested methodology' that the UCU has complained about. 'Mark-to-market' accounting is the major reason behind the so-called deficit and the justification for the closure of the final salary scheme and introduction of the hybrid scheme.

Graham made her remarks at an investment conference and was supported by other pension schemes. The coal industry scheme's representative said that "mark-to-market was forcing pension funds to buy UK Gilts, instead of other assets, unnecessarily" which, as members who have been following the recent debate about its future will know, is precisely what is happening to USS.

There is a clear implication that what is needed is for the rules and the 2005 legislation to be looked at again as not fit for purpose. The appointment Ros Altmann as the new minister could be an opportunity to do that. Her approach to pensions is measured and pragmatic, whereas her predecessor, Steve Webb, also a pensions expert, was an Orange Book Liberal, who seemed to have an unquestioning faith in the omniptence of markets. Ros Altmann has written about the USS saying that the deficit is overblown. On the other hand, Steve Webb has defended the mark-to-market methdology maintaining that pension scheme deficits it throws up are 'real'.

It is time the rules and methodology were looked at again before all DB pension schemes have been closed down as a result of ill-though-out legislation and regulation, and not least for the sake of combatting the short-termism of British investment.

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