A group of 39 finance experts is urging the £60bn Universities Superannuation Scheme to reject the recommendations of an independent panel that found flaws in the giant fund’s valuation.
In a letter to the USS, the British and international experts warned of “pernicious consequences” for the higher education sector if the scheme adopts the panel’s suggestions, which were made in September.
The Joint Expert Panel was set up to help settle a bitter industrial dispute between university workers, which erupted in 2017 after the USS said a funding hole had widened to £7.5bn. In response university employers said they were ending guaranteed pensions for hundreds of thousands of staff after the scheme proposed a big increase in contributions to cover the funding shortfall.
The panel — made up of employer and employee representatives — concluded the USS had been too risk averse in its approach to the valuation, which had the effect of inflating the deficit.
The panel recommended the USS — which has 400,000 members and is supported by 350 university employers — revise its outlook for investment returns, and delay a planned de-risking of its assets, which would bring down planned contribution increases.
But in a letter to Bill Galvin, group chief executive of the USS, 39 signatories, including a senior staff member with the IMF and former deputy chair of the Australian Securities and Investments Commission, called on the scheme not to change its approach.
“In our view, ‘taking account of expected future investment returns’ [as recommended by the panel] fundamentally misrepresents the economics of DB pensions,” said the letter.
“This is not a technical matter of disagreement between different pension experts, but has real practical consequences. Getting it wrong stores up future problems with pernicious consequences for UK higher education.”
The signatories disagreed with the panel’s recommendation that the USS should hold on to return-generating equities longer than currently scheduled as a way of reducing the deficit by £2.6bn, and said that strategy had “got so many UK and US pension schemes into serious trouble”.
In response to the letter, Joanne Segars, independent chair of the JEP, said the panel had “carefully considered evidence from a range of sources, including a number of signatories to the letter, and its conclusions were unanimous.
“The view of the panel is that the changes it proposes are practical and reflect the unique, underlying strength and longevity of the USS,” said the JEP.
The letter was sent to the USS as the scheme last week faced new allegations that it had misrepresented the fund’s financial position in the 2017 valuation.
Dr Sam Marsh, a mathematics lecturer at Sheffield university and USS member, said his analysis of USS asset projections showed the scheme was in surplus over the long term, which did not justify contribution increases.
The USS said Dr Marsh’s analysis was “not wrong in isolation” but was not an adequate premise on which to fund the scheme.
In a statement, the USS said: “While it is clear there are strongly held views on both sides of this issue, the trustee has always sought to make a balanced and independent judgment on the appropriate amount of investment risk to take to pay future member benefits.
The willingness and ability of sponsoring employers to cover any future shortfall is central to this judgment. We understand that employers and member representatives are currently re-assessing their positions on this following their panel’s proposals.”
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