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USS: ‘Addressing the Facts’

Published: 20th March, 2018

You may have received and read an ‘addressing the facts‘ email from USS. Please see below for a counter argument, as prepared by Leeds UCU:

Members will be receiving an ‘urgent update’ from the USS trustee today. We would like to offer some further information on this update.

We note that the trustee points out that “we rely on the employers’ collective financial strength and continued existence and ability to support member benefits over multiple decades” but avoids giving you the detail on this. USS’s actual assumption is that sponsoring employers will remain solvent for at least the next twenty years, and, moreover, in sufficient robust financial health that they could increase their employer pensions contributions to up to 25% of payroll (+7% more than the current 18%) for the duration of those twenty years. So, the USS make an assumption of affordability and increase in employer contributions that the employers nonetheless repeatedly deny – they can’t have it both ways.

As for the other assumptions they address in this urgent email, The USS and their actuarial advisers, Mercer, did list the assumptions used on page 106 of the most recent Report. In brief, they assume:

  1. A fall in the expected long-term nominal investment return from 4.7% to 2.83% pa.
  2. An increase in general pay growth in the year following the valuation from CPI (2.6%), to RPI + 1% (4.175% pa).
  3. Life expectancy increasing by 1.5% per year.


You might want to pause to consider the assumption of a 4.175% pay rise, and the cruel irony of your employers voting to downgrade your pensions on this assumption, all the while having absolutely no intention of agreeing anything like that salary increase.

In 2014, at the last valuation, the USS assumed cumulative pay growth over the following four years – 2014 to 2018 – of 16%. But as we all know, general pay increases have fallen well short of this, cumulatively increasing by only 5.8%. Do recall that it was partially on the basis of this presumed 16% pay inflation at the 2014 valuation that the last set of changes were made and the Defined Contribution element was introduced to our pension. Now, the USS estimates of the deficit assume that, in future, general pay will rise at a rate of RPI +1% (approximately 4.2% per year). Is there any evidence that universities will award cost of living increases at this rate? Furthermore, the ONS and the RSS has repeatedly warned that the RPI is a flawed measure of inflation, and should not be used. And yet, USS continue to use it to estimate the deficit.

Today’s ‘urgent ‘ communication adds a detail not captured in the USS report, that longevity is now considered to be capping at 90 to 93. This seems to contradict the 1.5% linear growth in the actual report, so that still remains to be explained. And yet, there has been little increase in life expectancy in the UK since 2011. The Institute and Faculty of Actuaries estimates that mortality rates are around 11% higher in 2016 than would have been expected based on the historical trend. This means life expectancy is lower, which should lower the USS’s liabilities.

But let’s look at that fall in the expected long-term nominal interest return. First, how can expected investment returns have fallen by 40% in four years? Surely a collapse in returns on this scale would be reflected in the equity or bond markets? Equity markets in high income countries are up 51.7% in the last four years (approximately 11% per year). The USS assumptions are consistent with a long-run real return of just 0.33% per year if using CPI as an inflation measure and a negative real return if using RPI as an inflation measure. This is completely implausible unless a long-term global recession is expected.

Please be conscious of the massive PR effort that is now being launched by USS and UUK in the face of the overwhelming action you have undertaken to defend your pensions and read such ‘urgent’ messages with extreme caution.