February 16, 2015

Why the UCU will find it hard to get any credit from the USS deal

What worries me is that what has been agreed is not a settlement and will not be the end of the matter. And it is hard to see how UCU can other than lose reputation from future developments.

First, the next step is that there will be a consultation of all USS members. All members of USS (not only UCU members) will be asked to respond to the proposals. What advice is the union going to give them? That they should protest against this shambles or support it? Our negotiators are currently sending out conflicting messages: that this was the best that could be achieved by negotiation so should be reluctantly supported and that it is unavoidable because it is based on 'economic orthodoxy' to which there is no realistic alternative. So there will be a focus on the UCU's role in the coming months.

Second, this is not a deal that will reflect well on the UCU in the long run. We hear that our negotiators 'contested the methodology' used to value the scheme. I am sure they did that. But having lost the argument the issue has not magically gone away. This is not some arcane dispute in the seminar room: it is of fundamental practical importance. It is about whether the USS pension scheme is ongoing or to be wound up. By accepting the employers' proposals we have agreed to the implementation of the methodology premised on closure of the scheme.

This methodology was debunked by the First Actual report. It showed that the employers were making assumptions that were economic nonsense. For example the assumption was that the share of GDP going to wages and salaries will increase indefinitely while that going to company dividends will decrease. Much as we might wish this were the case it flies in the face of all the evidence. And so on. All the assumptions made by the employers - and agreed by our negotiators - have been unfavourable to the solvency of the USS.

And the methodology appears to be increasing the volatility of valuations according to recent joint statement by the employers agreed with UCU: the March 2014 deficit (agreed by our negotiators to be £13 billion rather then the earlier figure of £7.6bn because we have accepted the so-called derisking strategy) could have increased by December to £20 billion. The EPF 'potential joint statement' says "At the time of writing, the deficit is now estimated to have risen to more than £20 billion because of adverse market conditions". (And this figure has been repeated in meetings by our negotiators with a straight face - so much for them not accepting the 'contested methodology') This is volatility on a scale unimaginable in the pensions world before this new methodology was introduced.

This means that the figures for the valuation of the scheme are becoming pretty meaningless - they can change hugely in a matter of months due to otherwise unspecified 'market conditions'. Yet these figures are what is driving the scheme. As I have blogged (http://tinyurl.com/p7s6e8u), the methodology involves doublethink. It is supposed to reduce risk but is in fact extremely volatile (ie risky).

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