Letter to Chair of USS Joint Negotiation Committee – February 2022



Judith Fish

Chair of USS Joint Negotiation Committee

Dear Judith, 

The Universities Superannuation Scheme stands at an important crossroads today. The Joint Negotiating Committee (JNC) is a key element of the governance of the Scheme and you, as JNC chair have a unique fiduciary duty to the Scheme. Given previous discussions of the JNC, we are now in a situation where the use of your casting vote as JNC chair appears imminent. 

Employers’ proposals will ensure an average 35% cut to the guaranteed benefit element of the Scheme. Your decision therefore will make a vital difference to how poor many of the 470,000-odd members of the Scheme will be in old age. 

As a member of the JNC elected to defend the interests of those 470,000 members, I am writing to record my grave concerns about the underlying decisions that see us at the current impasse. Any one of the below concerns, in isolation, gives cause for halting and reversing any proposed adverse changes to the Scheme. Taken together, they present a pattern that looks like wilful destruction of a healthy and sustainable Scheme, without reasonable cause. 

Choice of date of valuation 

Valuations for DB pension funds provide an indication of the direction of travel of the Scheme and are intended to aid with course correction, rather than providing a series of “cliff-edge moments”. The out-of-cycle 2020 valuation was carried out by USS on 31st March 2020, at a time when markets were depressed and in a state of extreme flux and volatility.

The choice of date at the start of the Covid pandemic and the timing & implications of Brexit, mean that a valuation conducted on this date cannot not provide an accurate or reliable basis for future predictions. Actuaries across the world are concerned at the impact on longevity of the coronavirus pandemic, and this will require careful and holistic consideration in the next few years. It is not clear from JNC deliberations, that these factors could have been accurately reflected upon, given the choice of valuation date. 

Indeed, subsequent real-world evidence including that published by USS, shows that the 2020 valuation has not provided a realistic assessment of the direction of travel of the Scheme; instead it shows a marked difference in trajectory.

Reckless (im)prudence and extreme pessimism

Experts have for long been concerned about the misuse of the term ‘prudence’ to justify highly pessimistic valuation assumptions for USS, which is a unique sector-wide, open, immature, last-man-standing Scheme. Contrary to the advice of the Joint Expert Panel, the 2020 valuation assumptions have doubled down on extreme pessimism. The sudden and grotesque change in the prudence levels since the last valuation is illustrated by the graph below. The expectations on investment returns, inflation, and demographic assumptions including mortality are particularly concerning within the valuation. These assumptions result in dissonance between reality and the mythical deficit constructed by this ill-timed valuation. No evidence has been provided to the JNC of any other open defined benefit pension fund in the UK making such a drastic and – in my opinion – reckless changes in prudence assumptions at a time when market conditions are so choppy/ turbulent.

Members are being exposed to new and dangerous risks, under the guise of managing certainty in the long-term. When we look at the earlier plans to “de-risk” the Scheme, in terms that introduce greater risks to the provision of pensions and fuel the global debt bubble, it is clear that extreme pessimism is being used to recalibrate reality to fit a discredited and flawed model.

graph courtesy: Jackie Grant and Sam Marsh, UCU

Impact to the covenant of the last-man-standing implications of Office For Students membership of the Scheme

The information provided to the JNC regarding the implications of the government backstop as a result of the last-man-standing feature of the Scheme is lacking in evidence and depth. In the past it has been suggested to us, that the reason the Scheme cannot be benchmarked against the Local Government Pension Scheme is a result of the taxation powers providing the backing to that Scheme. Yet, now when the corollary applies in the context of the Department of Education and the subsequent Crown Guarantee, this consideration is brushed under the carpet as inconsequential to the risk metrics of the Scheme. We have not yet had a convincing explanation from USS’ actuarial advisors or those providing the covenant assessment as to why this element was not previously disclosed to the JNC, and despite requests we have not been provided with evidence demonstrating that the Board has specifically and in sufficient detail documented consideration of this factor. It would be useful for the JNC to be able to consider these. 

Denial of information related to projected cashflows

The JNC cannot make reasonable decisions without the ability to review and rely on underlying information. One particular area, persisting from at least 2021, and relating to original requests by our actuaries well prior to that date, is the provision of the projected cashflows. 

Having waited several months for that data, we were told that the information could not be provided to us as a result of the ongoing court case where members are seeking accountability for the management of the Scheme. JNC have not yet been provided any evidence that this secrecy associated with the projected cashflows has any reasonable basis. Without understanding the projected direction of the Scheme on the basis of these cashflows, and adequate consideration of this information, it would be irresponsible of the JNC to facilitate any significant changes to the benefits or contributions structures. I urge you to consider the implications of the absence of this evidence in the context of your fiduciary duties. 

As someone who has studied the global financial crisis of 2007 in some depth, I would also like to alert you to the parallels between the causes of that crisis and the seductive and selective framing of risk that we now see in this context. In particular I want to alert you to the dangers of relying on modelling that is at odds with reality and the proliferation of a particular kind of group think that results in wilful blindness to risks, (not to mention the supposed “de-risking” that leads to greater longer-term risk of not paying pensions and of increasing contributions and causing the fracture of a well-performing and valuable Scheme). 

Broader Concerns

There are broader concerns too that you will no doubt consider. Among the most significant of these, are the worries re: the integrity of the JNC process, if one party can undermine any alternative proposals from the other from even being considered seriously, using the unilateral withdrawal of covenant support as a mechanism to prevent any proposal other than its own being voted upon seriously. Members are clearly at a loss, if reasonable proposals from their representatives cannot be taken forward despite being put in good faith. 

Another concern is the basis on which JNC is making decisions. In particular, I am concerned that when the consultation with employers was carried out, employers’ view of the sector-wide finances could not have been accurate, given the publication of sector-wide results at a late stage and the reliance on grossly pessimistic and out-of-date projections of sector finances to inform earlier stages of decision making that included democratic debate within HE institutions. The consideration of support for alternative positions to that proposed by the employers’ representation body, needs to be carried out with the same rigour as their own proposals. You will note that repeatedly and publicly, employers have used the justification of the finances of the sector to explain proposed cuts. The reality of the current position of the sector is at odds with this and is detailed further here https://beyond-education.co.uk/ussstrike-uss-unis-see-3-5bn-surplus-boost-while-cutting-2600-jobs/

It is vital that each and every one of these issues is considered in depth and discussed further in good faith by the JNC, so unjustified changes that wreck a healthy, valuable and well-performing Scheme are not introduced. In order to ensure the JNC’s decisions can be trusted, I urge you on behalf of the members I am elected to serve, to consider your fiduciary duties in this context and to apply your powers as JNC chair to facilitate a constructive discussion that is grounded in the reality of what any cuts will mean at this juncture .  I urge you not to use your casting vote, not to allow cuts to benefits, and to facilitate further dialogue between the JNC members based on evidence and facts. Please note that I will be sharing this email with members. 

Yours truly

Dr Deepa Govindarajan Driver