Is USS in deficit?

Two bad arguments, and one good one, that the answer is No

In the following three linked tweet threads, I assess two bad arguments, and one good one, for the claim that there is no deficit.

(Bad) Argument #1 (Thread reader version): The scheme is not in deficit but rather is in surplus because it will be cash flow positive for the next several decades.

(Bad) Argument #2 (Thread reader version): The scheme is not in deficit but rather is in surplus because it is in surplus on a best estimate basis.

(Good) Argument #3 (Thread reader version): USS lacks sound basis for ‘de-risking’ the assets over the next 20 years. Once this ‘de-risking’ is cancelled, the scheme is fully funded on a prudent basis.

Rather than ignoring the bad arguments and jumping straight to the good one, it will be useful to read these threads in order, for the following reasons:

The first ‘(Bad) Argument #1’ thread spells out some basics of what it really means for a DB pension scheme to be in deficit, according to current regulations. It also explains how not to argue that the deficit is illusory because the scheme is cash flow positive. This bad cash-flow-based argument must not be confused with the way in which ‘(Good) Argument #3’ appeals to positive cash flows to establish that the scheme is not in deficit.

Moreover, ‘(Good) Argument #3’ also draws on some claims in my thread on ‘(Bad) Argument #2’ regarding the downside risks of investment in equities rather than bonds and the need for a prudent adjustment to one’s best estimate of investment returns.