How should employers respond to the USS valuation?

[UPDATE: Please also see this blog entitled ‘On the significance of USS’s misrepresentation of tPR’, which employers should take into account in forming their response to the consultation.]

Below are two recommended employer responses to the current consultation on the USS 2018 valuation, along with links to threads in which I elaborate on my reasons for offering these recommendations.

Please first read, as background, the following brief thread in which I describe the constraints under which we’re now operating on account of the pronouncements of the Pensions Regulator (tPR) and the stance of the USS executives:

(References to ‘Sam’ in the above thread are to Sam Marsh, a UCU-appointed JNC negotiator. References to ‘Derek’ are to Derek Benstead of First Actuarial, who is one of UCU’s actuarial advisors.)

Employers should offer their strong and concerted endorsement of Aon’s recommendation to reduce deficit recovery contributions (DRCs) from 5% to 3.5%:

As I explain in the thread immediately above, a lowering of ‘upper bookend’ DRCs from 5% to 3.5% plays a prominent role in Aon’s contingent contribution proposal, as it lowers the three stepped contribution increases from 1.5% each to 1% each.

This is the most significant adjustment to USS’s 2018 valuation that Aon is calling for. As I note in the thread, downward adjustment to DRCs for the 2018 valuation follows, as a matter of consistency, from USS’s recent downward adjustment of DRCs for the 2017 valuation in response to strong employer challenge. A reduction in DRCs is, I think, among the marginal improvements to the valuation that might be achievable as the result of this consultation, but only if employers push hard for it.

Employers should also offer their strong endorsement of Aon’s contingent contribution proposal more generally, including a 30% likely trigger based on the technical provisions rather than the self-sufficiency deficit:

In this thread, I made the case for the superiority of an ‘all yields plus’ technical provisions trigger to a ‘gilts plus’ trigger:

On account, however, of resistance on the part of USS to anything more sensible, Aon’s proposal involves a ‘gilts plus’ trigger — albeit annually updated to reflect USS’s most recent best estimates of returns on various asset classes. Whatever its flaws, such a gilts plus technical provisions trigger is an improvement over the ‘reliance’ (aka self-sufficiency deficit) trigger that USS had previously suggested. See this blog post for what’s wrong with a reliance trigger:

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Professor, Dept. of Philosophy, Logic & Scientific Method, LSE

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