Why have the UCU negotiators rejected the advice they commissioned on the USS?

It looks like the USS negotiators have scored a huge own goal by accepting the employers' agenda on the future of the USS.

What is hard to understand is why they went to all the trouble of commissioning a report from First Actuarial and then have apparently ignored its findings. In their circular to members they say they have challenged the valuation methodology used by the USS trustees. No doubt they have done so in the meetings. But then they seem to have simply swallowed the trustees' arguments rather than stick to their guns.

The problem seems to be that they are used to negotiating within a 'space' where there is a range of outcomes, such as surrounding salaries. But it is not like that here. It is a black and white issue of whether the USS continues (with or without minor changes) or whether it is prepared for eventual winding up. The trustees want the latter, led as they are by the independent appointees and the USS chief executive who view the USS as just a big private sector scheme no different in its governance principles than Tesco or Marconi. There are many people in the pensions industry who view the DB principle as dead and all that remains for the trustees of such schemes is to close them making sure there is always going to be enough to pay the legacy pensions.

What is worrying is that our negotiators make no mention of the First Actuarial report. It shows - very clearly with compelling evidence - that if the accounts are done by treating the scheme on an ONGOING basis, and all the key 'technical provisions' - that is the assumptions about future inflation, interest rates, life expectancy, salary increases, etc - are reasonably prudent (rather than loaded to make things look as bad as possible as the trustees have done) then the scheme could well be sustainable.

The ongoing assumption is perfectly reasonable if we believe the pre-92 universities have a solid future. That removes the need for 'de-risking' (the biggest component of the deficit and entirely mind-forged).

The report makes the point that in order to do the accounting properly for an ongoing scheme more information is needed and they pose a series of questions for the trustees. Our negotiators should be asking for those questions to be answered because the indicative calculations in the report suggest the scheme might not be in bad shape.

The First Actuarial report is not of course an isolated contribution that criticises the trustees' assumptions. But it does spell out the dichotomous nature of the issue: ongoing or self-sufficiency (ie getting ready to close) basis.

There are real grounds for concern about the management that has been put in place. I have some criticisms of the chief executive Bill Galvin (who was previously the head of the Pensions Regulator). I believe that the market fundamentlism he evidently fervently beleives in - the idea that forecasts underpinning the technical provisions should always be derived from market prices to the exclusion of all other information - because markets are by definition efficiient - is a form of imprudence in itself and likely to lead to further economic crises. I will write at greater length about this.

Dennis Leech : 18 Jan 2015 13:39 |  Comments (0) |  Report a problem