USS should have released tPR’s statement in January and UUK should have called for this then
[UPDATE 17 June regarding Point 5 below: Eastwood’s failure to share tPR’s email with all the trustees in January appears to be in breach of his responsibility as chair to “Ensure that the directors have … sufficient information on all relevant matters to make properly informed decisions” (USS “Corporate Governance Framework Policy”, p. 58).]
1. FT correspondent Josephine Cumbo has now released an extended excerpt from the 8 January 2019 email from the Pensions Regulator to USS, in which the regulator corrects USS for mischaracterising their views in an employer consultation document on the 2018 valuation that USS had released on 4 January. (I reproduce this excerpt in full at the bottom of this post.)
2. The regulator’s permission to make their corrections of USS’s statements of their views public is clear, as is their wish that USS do so:
As the consultation [document] is now online, we will not insist that you correct the wording [of your statement of our views] but we would ask that you consider doing so. It is important that our position is not potentially misrepresented…. We may of course need to correct the record if these [inaccurate] statements [by USS of tPR’s views] are referred to in the media.
3. As I explain in Section 2 of my 6 March blog post in which I drew attention to tPR’s apparent public rebuke of USS, the misrepresentation of tPR’s views in the consultation document was “material because it undermines USS’s case for an immediate shift to bonds”. Beyond its bearing on the case for de-risking the portfolio, tPR’s email contained important information regarding the role of a discount rate measured relative to gilts in informing their assessment of the overall level of risk of a valuation. It is clear that employers regard tPR’s views on the valuation as highly relevant and they are right to do so. Hence, tPR’s email should have informed employers’ responses to the consultation. It is also worth emphasising that USS has established more than one precedent for sharing important communications from the regulator with employers even after a consultation has opened. They released a letter from tPR dated 15 September 2017 during the course of the September 2017 consultation on the valuation. They also released a letter from tPR to employers on Option 3 during the closing days of the most recent consultation. Why, in the light of their willingness to share other important communications from tPR with employers, did they not share this one?
4. Given points 2 and 3 above, it is clear that USS should have publicly released tPR’s email that Cumbo has now published and that they should have done so shortly after they received it in January. Although this release would have been awkward and embarrassing for them, USS appears to have no legitimate justification for their failure to do so.
5. Given points 2 and 3 above, it is even clearer that Sir David Eastwood, chair of the trustee board, should have swiftly shared tPR’s email with the other trustees. Cumbo reports, however, that “the email was only shared with the entire USS trustee board in May after Prof Hutton sought confirmation from the regulator about its position on discount rates”. How can Eastwood expect his fellow trustees to discharge their fiduciary duties in the absence of such highly relevant information regarding tPR’s position? Eastwood’s failure to swiftly share this email with the other trustees lends significant credence to UCU-appointed trustee Jane Hutton’s complaint, as reported in an earlier FT piece, that both Eastwood and USS executives had acted inappropriately in failing to provide information or documents to the trustees. Eastwood’s position appears to be untenable. Assuming that he is unable to provide a justification for his failure to swiftly share this email with the other trustees in January, Eastwood should resign as chair of the trustee board.
6. As I note in point 3 above, the regulator’s email contained important information which should have informed employers’ responses to the consultation. We have now learned (see last paragraph of email excerpt) that the regulator sent UUK a copy of their email when it was sent to USS in early January. This fact raises serious questions, which I pose to Employer Pensions Chair Adam Tickell in response to a tweet of his:
7. Scheme members, employers, and trustees are also owed an explanation of the role of CEO Bill Galvin and the other USS executives in the failure to disclose tPR’s January email. Did Galvin advise Eastwood not to share this email with the other trustees? If he did, and assuming that Eastwood lacks justification for his non-disclosure, then it appears clear that Galvin should also resign. Even if he did not so advise Eastwood, Galvin owes employers and scheme members an explanation for why USS did not share the contents of tPR’s email with employers and scheme members shortly after they received it.