A response to USS’s initial reply to my claim that their valuation rests on a mistake

USS has just replied to a blog post I wrote on Saturday entitled ‘USS’s valuation rests on a large and demonstrable mistake’, which analyses Sam Marsh’s findings regarding Test 1. USS’s reply is conveyed via a series of tweets by FT pensions correspondent Josephine Cumbo. The tweets are reproduced below, with my commentary interspersed.

The second sentence is a non sequitur. The fact of extensive review by independent experts does not establish lack of error. In fact, the report of the Joint Expert Panel is highly critical of USS’s application of Test 1. The following excerpt from the JEP report, especially the yellow-highlighted (but see also the third bullet point), well-captures the problems with USS’s approach that Marsh’s analysis reveals:

[Update: See also this two-part tweet by Sam Marsh which further documents JEP criticism of USS regarding their deployment of Test 1.]

Here is the next part of USS’s response:

This is egregiously inconsistent with past USS pronouncements regarding engagement over matters of detail with individual scheme members. This, recall, is what Bill Galvin said to Marsh last year when he attempted such engagement:

USS can’t have it both ways. They can’t tell scheme members to buzz off and engage via their union or their employer, and then turn around and complain that we have not shared and discussed our views with them directly.

The argument in my blog was that Marsh’s findings demonstrate the error of USS’s claim that, on a proper understanding of Test 1, it mandates changes to the scheme. Note that USS does not attempt, in their response, to engage with the substance of claims regarding their misdesign of Test 1. Rather, here they appeal to a different argument, having to do with downside risk, for making changes to the scheme.

The above claim is simply false. My critique of USS’s application of Test 1 takes on board the current limits of the risk appetite of employers, as expressed via USS’s existing, restrictive £10bn gap in reliance on the employer covenant.

Both scheme members and stakeholders — employers as well as the union — are owed a much fuller response that engages with the substance of the critique of Test 1 that arises from Marsh’s findings. I hope the trustee will demand this of their executive.

UPDATE: On 16 October, USS posted a fuller response, which engages to a greater extent with the substance of this critique. See here for my explanation of how it nevertheless fails to answer my charge of “large and demonstrable mistake”.