30 October 2018
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Consultation on JEP report
In response to the following questions:
- Would your institution support the JEP recommendations reading the 2017 valuation in overall terms subject to the acceptance of such a position from the USS Trustee and TPR as appropriate?
- What further information would you need to provide a final view for question 1?
- Employers currently pay 18% towards the USS scheme, and the mandate agreed immediately following the ACAS discussions was 19.3%. if the recommendation of the JEP were accepted in full by all parties the outcome would be that existing benefits -minus the employer match of 1% could be provided at an indicative employer contribution of 20.1% of salary with a member contribution of 9.1%.
(a) would you accept employer contributions at that level?
(b)If not, what balance of additional risk, higher contributions and/or benefit change would you prefer to see as an outcome
In response to your questions, we have consulted with all the board members and come up with a collaborative response. Our response is below.
We welcome the JEP report which was comprehensive and positive. We note that the report has been welcomed by representatives from both employers and members, and this collaborative approach has to be welcomed, as a model for future valuation processes, and to avoid the industrial action that impacted the sector this year.
Subject to acceptance of the report by the Pension Regulator and Trustee, we are very happy to accept the recommendations of the report.
Looking at the detail of the report, we agree that the valuations have been too conservative. It appears that this is a problem partly caused by regulation which appears to require a valuation of the scheme as if the fund could be closed at any moment, without recognising the good performance, strength and likely longevity of the scheme. We also feel the valuation process has been too insular and lessons could be learnt from similar schemes elsewhere. Two of our board mention schemes in the US and Australia where arrangements remain robust and all the superannuation schemes have similar issues and global investment opportunities.
We agree that it has been difficult to find succinct knowledge or clarity in the huge volume of information provided to employers about the valuation process. We feel that members are very likely to lack understanding of the issues. We agree that we have been frequently asked to respond to consultation documents, which although of crucial importance, have an unrealistic response window, lack clarity, explanation and context and are poorly worded. It is also unclear whether responses are weighted with the institution’s share of the assets in the scheme.
We specifically feel that consultations about risk profiles have been poorly worded. As a small organisation without property investments etc, we have a cautious approach to risk. Even so we do not keep our own funds in low interest safe accounts but invest most funds in a portfolio of investments that will give us good long-term returns. We are aware though that we are only a very minor scheme member and we agree that the strength of the HEI sector has been underestimated. As part of a collection of strong asset rich institutions, we would suggest that the risk tolerance for the scheme as a whole should be higher than our own, and so a low risk/low return valuation is not appropriate.
Clearly it would be helpful to know if the Pension regulator agrees with the findings, as the scheme needs to be compliant with legislation. We might add that the legislation itself would benefit from review.
As we have reported before, we are not happy about increasing contributions further.
- However, in order to move forward, our institution would accept the increase to 20.1% in the short term. It is possible that increasing the already high member contributions could result in members withdrawing from the scheme. In our case this might have the distressing effect of triggering a Section 75 calculation.
- Again, this question is vague and difficult to quantify (perhaps some specific examples to choose from would be easier to answer). We would prefer that the valuation took a longer term, less conservative view and we would be happy with a higher risk portfolio as this would likely to need lower contributions.
Signed on behalf of the management and Trustees
Chief Executive Officer