USS Pensions: what now?

1. USS pensions: what now?
Andrew Chitty, Sussex UCU Exec
12th February 2020 to Sussex UCU members
Sussex UCU Pensions Work Group:
Andrew Chitty,
Jackie Grant
Sarah King

2. • Reminder of JEP1 + current valuation
• Summary of JEP2
• Dual Discount proposal
• Context: Jane Hutton, Frank Field, new Chair
• What has action has achieved
• What's happening now? Why more action?
Appendix: Sussex and references.
USS: University Superannuation Scheme

3. USS should give serious
consideration p 56
Mitigate against Test 1
If all 6 applied to 2017
Deficit = £4.0 bn
Members = 9.1%
Employers = 20.1%
If all 6 applied to 2018
Surplus = £0.6 bn
Members = 7.8%
Employers = 17.7%
✔✔
Reminder: JEP1 Sep 18

4. Current valuation: Option 3 still uses Test 1
• Option 3: 21.1% Employers 9.6% Members.
October 2021: 23.7%, 11.0% (unless superseded by 2020 valuation)
• TPR, Aug 2019 on Option 3:
• Sussex response, Council March 2019: 'The University of Sussex is disappointed
that the recommendations of the Joint Expert Panel were not acceptable to USS.'
• UUK spokesperson Adam Tickell, July 2019, FT 'But Prof Tickell, who disagreed
with the union's interpretation of how the review's recommendations should be
applied, said the proposal supported by employers 'substantially' meets the
recommendations of the independent Joint Expert Panel.'

5. Joint Expert Panel 2nd report, JEP 2, Dec 2019
'Our conclusions and recommendations should be considered as a package which,
taken together, can provide a way for the interested parties to work together to
secure the future of the Scheme and a more holistic approach to the problems that
arise. '
'the Panel has serious concerns that without a clear commitment to action, the
Scheme will end up in the same place again'
'The Panel believes that a failure to take forward the recommendations in this report
would mark a failure for members, employers and the sector. '
'the Panel wishes to propose that all of the interested parties commit to a 'road map'
'Three key areas that should be addressed are:
• governance, including the role of the JNC;
• the 2020 valuation and beyond; and
• the long-term strategy for the Scheme.' Extracts from
conclusions p 93-94

6. JEP2 (cont.)
On JEP 1: 'The failure to collectively go forward with these
recommendations [JEP1] was, in the Panel's view, a missed opportunity to
resolve the dispute and provide room for a discussion of the longer-term
issues facing the Scheme.' (p4)
On valuation governance: 'There is a view that the Scheme's valuation
governance does not work well and is no longer fit for purpose. The Panel
shares this view.' (p38)
On Test 1: 'The Panel could not identify any circumstances in which it
believed that Test 1 should be the primary driver of funding and
investment strategy.' (p56)
On UCU: 'As the qualitative research amongst members and non-members
demonstrates, the information UCU provides is valued and trusted by
union and non-union members alike.' (p52)

7. JEP 2: Dual Discount rate for valuation
USS Modelled
• Gilts + 2.5%, gilts +0.75%
~ 2018 valuation
• Gilts + 3.0%, gilts+0.75%
• Gilts +3.5%, gilts +0.75
FSC as low as 23.8%
Option 3: FSC 28.7%
'The Panel has not sought to infer any particular investment strategy…
the Panel strongly urges the Stakeholders and Trustee to work together to actively consider the approach
presented by the Panel.'

8. Andrew Chitty: JEP2's dual discount rate proposal for USS: an analysis and evaluation
https://medium.com/ussbriefs/jep2s-dual-discount-rate-proposal-for-uss-an-analysis-and-evaluation-eaffaef6ff64

9. JEP 2: Dual Discount problems?
JEP2 recommend: examination of impact and
unintended consequences
• higher earners leaving the Scheme because of increased
contributions,
• cliff edges between contribution levels which could leave
Scheme members worse-off
• any adverse intergenerational impacts.
Andrew Chitty in analysis
• discount rates tethered to the long-dated gilt yield.
• Potential for negative feedback loop due to increasing
rates increasing opt-out, increasing rates

10. Two proposals for Dual Discount Rate problems
Andrew Chitty: JEP2's dual discount rate proposal for USS: an analysis and evaluation
• Untethering pre-retirement rate from gilt yield
Pre-retirement discount rate using a transparent version of the Fundamental Building
Blocks approach, i.e. one in which the data and calculation method are made public so
that in principle anyone could check the calculations.
• Five year rule for use of post-retirement rate
At any given time only that part of the fund associated with liabilities which will fall due
within the following 5 years would be invested in a self-sufficiency portfolio, while the
rest would remain in a return-seeking portfolio

11. JEP 2: first hurdle
Implementing JEP 2: road Map, at pace, 2020 valuation
5 facilitated tripartite talks in January.
Start by agreeing Scheme Purpose Statement and Shared Valuation Principles
JEP recommended statement of purpose: 'To help members achieve a financially secure
retirement and to instil trust and confidence in the Scheme, while providing an excellent
service to members and employers that supports the long-term needs of the HE sector.'
Stakeholders' statement of purpose: 'To provide a financially secure future and retirement for
scheme members and their families, and support the long-term needs of the HE sector.'
USS Trustee statement of purpose: 'Working with Higher Education employers to build a
secure financial future for our members and their families.'
✘ No agreement on shared purpose statement reached in tri-partite talks
Joanne Segars JEP chair

12. JEP 2: Road map
Five tripartite talks: short summaries agreed and published
at ussjep.org.uk
Valuation Discussion Forum established
Strategic Discussion Forum to be created
JEP proposals
- Dual Discount Rate proposal for valuation but NOT investment strategy
- Radical ideas to replace JNC or add support, independence, remove chair's vote
- Replace UUK (UCEA?). Join Pay + Pensions negotiations together
- Mutuality? Strength of covenant? Ensure open scheme? All reduce risk
- How to consult members and rebuild trust?
- Address 15% opt-out rate (primarily due to unaffordability)
Joanne Segars
JEP chair

13. ContextFT Editorial Board, 29 November 2019
'An independent inquiry should scrutinise the handling of the USS valuation by all
key players, including the Pensions Regulator'
The Pension Regulator, 13 December 2019
'The JEP report's high-level recommendations, including for effective governance
and clear communication during the valuation process, align with our views.'
'The adoption of a dual discount rate broadly aligns with our proposed approach
for the new defined benefit (DB) funding code'
TPR are attending Stochastic Modelling Group JNC meetings
Sam Marsh
JNC UCU Negotiator

14. UUK: First phase of consultation with employers on JEP2, deadline 28 Feb
- IDS staff consulted and response will be shared
- Sussex staff not yet consulted, no promise to share response
- UUK selectively quote JEP2 discussion of JEP1
Jane Hutton
Case for unlawful dismissal.
UUK no comment UCU: release legal documents
Academics for Pension Justice
QC 'good grounds to take this matter to court based on breach of trust'.
UCU Dec 2019 SHESC motion carried to consider launching legal challenge
New USS Trustee Chair: Kate Barker August 2020,
British Coal Staff Superannuation Scheme, Council Oxford University
Chair of Governors Anglia Ruskin University.
Jane Hutton
Kate Barker
Context

15. What has action achieved on USS?
2018-19: Two excellent unanimous JEP reports
2019: Increase of national support + media coverage = pressure
5 tripartite talks: UUK, UCU, USS, chair JEP: 'positive spirit'
• 'Valuation methodology' and 'Strategic' discussion forums established
• Options paper on JNC to be developed, presentation on opt-outs from USS
• Trustee's review of valuation methodology ongoing
• TPR attending JNC stochastic modelling group
UUK are consulting employers
• On JEP2 (in 3 phases of consultation)
• On covering additional pensions contributions
IDS are consulting staff on UUK consultation

16. What is happening now? Why more action?
• Employers should cover the cost of the flawed valuation methodology
• Re-ballot. Now: 74 institutions in Pay and Pensions disputes (52 in Pensions)
• UUK did not call strongly enough for JEP1 in 2019
• JEP2 is more complex, structural and cultural = challenging
• Employers must publicly call for JEP2 must be implemented 'as a package'
Is the only way to push for this with pressure of action?
Will an offer be made in time?
Will it be put to members?
How will UUK play this?
Will there be conditions?
Will there be last minute changes as in 2019?
How will it be linked with UCEA dispute?

17. Appendix on Sussex
• Sussex: VC Adam Tickell is chair of Employers Pension Forum
• Sussex: Director of Finance Alan Spencer is on the board of Employers Pension
Forum
• Sussex: Council member Kristin Baker is member of Board of The Pension Regulator
• Sussex Institutional Response to 2017 Valuation
• 'We question the benefit of continuing a DB portion…. be clearer the DB element goes now'
• Sussex Institutional Response to 2018 Valuation
• 'The University of Sussex is disappointed that the recommendations of the Joint Expert Panel
were not acceptable to USS.'
• 'Broadly the University of Sussex accepts the valuation assumptions proposed by the trustee'
• 'The approach in assuming no asset outperformance on investments is in stark contradiction to
previous practice: it is unrealistic and out of step with practice on other scheme valuations.'
• Subsequent responses are all short agreements, compiled by Sussex UCU FOIs
https://sussexuss.wixsite.com/responses

18. Appendix on Sussex and Climate change
• Sussex declares climate emergency, 1 August 2019, VC Adam Tickell stating
that 'unless the higher education sector works together to address the
problem at every possible juncture, we will be failing the young people who
turn to us – and who need us to protect their futures.'
• Sussex have fully divested and now have £175 million with Lion Trust
Sustainable trust
• USS still have £1.3 billion in fossil fuel companies
• USS have consistently and repeatedly voted against share holder proposals for
Royal Dutch Shell to set targets to below 2°C as aligned with the goal of the
Paris Climate Agreement.
• Sussex did not respond to USS new Statement of Investment Principles
consultation earlier this year.
https://divestuss.org

19. Questions? And references
• A. Chitty, USS related materials back to 2014: http://ussmaterials.blogspot.com
• TPR support for JEP2 https://www.thepensionsregulator.gov.uk/en/media-hub/press-
releases/joint-expert-panel-report-on-uss-statement-from-tpr
• USS timeline for 2020 valuation https://www.uss.co.uk/how-uss-is-run/2020-
valuation/2020-valuation-timeline
• JEP2 https://ussjep.org.uk
• USS Employers (run by UUK) https://www.ussemployers.org.uk
• Employers Pension Forum https://www.employerspensionsforum.co.uk
• USS https://www.uss.co.uk
• UCU https://www.ucu.org.uk
• Sussex annoucements https://www.sussex.ac.uk/news/all/?page=28&id=47898 and
http://www.sussex.ac.uk/broadcast/read/42450