The document entitled USS - the need for reform published by UUK as part of the consultation document contains the following statement:

Currently the investment risk carried by USS is relatively high due to the fact that the majority of its assets are held in equities (stocks and shares and other growth assets) rather than government bonds and other liability matching assets. However, by reducing the investment risk (and therefore the expected rate of investment return) the cost of funding the benefits provided by USS increases. This is because USS would no longer be able to rely on the higher investment returns it predicts it will obtain from equities and instead needs more cash contributions from employers (and employees) to fund the benefits. Without changes to benefits it will not be possible to reduce the risks associated with the scheme and maintain employer contributions at 18 per cent."

This is an extraordinary statement that seems to contradict itself. Apart from blatently seeking to transfer risk to members by cutting benefits, it says that if it invests its funds in equities and other growth assets the USS expects to obtain higher returns than it can get from investing in government bonds and other liability-matching assets. (Elsewhere they estimate this to be worth £4.4 billion - over ten percent of the value of the fund - so this is not a minor matter.)

Surely this is nonesense. You can't have it both ways. Either there is an equity premium or there isn't. Prudence would suggest valuing a risky return at zero if the risk is that it will not materialise. But the trustee valuation assumes it will materialise.

More fundamentally this is making a very strong assumption. The return on equities is linked directly to economic growth (through company dividends). Are the trustees now assuming that this link is no longer relevant? Are they seeing equities as simply risky financial instruments (as many financial theorists seem to do) unrelated to the real economy? If so this is very poor economics.