The main obstacle to a No Detriment valuation

USS is unwilling to defy tPR in order to achieve this

Here, in eight points, I spell out the main obstacle we face in achieving a No Detriment valuation:

1. To a greater or lesser degree, all parties to the current USS dispute are in agreement that the stance of the Pensions Regulator (tPR) is indefensible.

2. USS is among those who deem tPR’s position indefensible, since they have “robustly defended [their assessment of] the strength of the covenant [as ‘strong’ rather than ‘tending to strong’] in all meetings with the regulator.” USS has also issued a valuation on the assumption that the covenant is “strong” rather than “tending to strong”, even though tPR continues to maintain their assessment of the covenant as merely “tending to strong”.

3. UCU is calling on USS to submit a No Detriment valuation involving no increase in the current 26% level of contributions. Such a valuation would exceed the limits of what tPR would find acceptable for even a scheme with a strong covenant. If the JEP proposal to postpone consideration of automatic triggers (or other contingent support) is included as one of their recommendations, it is especially clear that such a valuation would significantly exceed tPR limits of acceptability.

4. It is clear from the consultation document on the current valuation that the USS executive would not endorse such a No Detriment valuation (especially if it involves no contingent support).

5. The case could be made, on the merits, that it is nevertheless the fiduciary duty of the USS trustees to stand up to tPR and submit a No Detriment valuation, thereby exceeding the limits that tPR deems acceptable for even a scheme with a covenant that is stronger than they deem USS’s to be, and in spite of the fact that their executives recommend to the contrary.

6. It is clear, however, that the current board is not prepared to act in such defiance of tPR and their own scheme executives. We would require a new board to achieve this.

7. UUK (and, if necessary, UCU) might try to bring about such a new board via exercise of their power to remove trustees and replace them with those more likely to discharge their fiduciary duties, on the understanding of such duties in point 5 above.

8. The problem with this course of action, however, is that it is “against the law for a trustee to be dismissed or detrimentally treated for carrying out your duties or using your powers properly”. It would not be hard for trustees to demonstrate that they were carrying out their fiduciary duties properly in refraining from approving a valuation which breaches the limit of tPR acceptability even for a covenant stronger than they deem USS’s to be, and against the advice of their scheme executives.

It is on account the above difficulties in achieving a No Detriment valuation that I regard the approach sketched by Aon in their advice to UUK to be more constructive and fruitful than calls on USS to adopt a No Detriment valuation. I don’t see how the latter will get us anywhere at this point.

Written by

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

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