The Charybdis at the centre of the USS

August 31, 2017

As others have pointed out in these pages, recent reporting on the health of the Universities Superannuation Scheme pension fund has been alarmist and misleading (“Estimates may vary”, Letters, 10 August; “Crisis accounting”, Letters, 3 August).

The USS is fundamentally very strong: it makes more money each year than it pays out and is forecast to do so indefinitely far into the future; investments have performed extremely well, growing at a rate of 12 per cent per annum over the past five years; and a “best estimate” of the fund’s health will show a substantial surplus. Despite knowing these facts, we are fearful of the imminent triennial valuation.

Our main fears are due to a complicated and counter-intuitive brainchild of the USS’ risk management team known as Test 1. Devised as a mere guiding principal in 2014, and not required by the pensions regulator, it has grown into the centrepiece of the way the USS carries out its valuations. Earlier this year, we wrote about how Test 1 could force the scheme on to the rocks unnecessarily, and we consider this to be the main threat to the longevity of the scheme (“Fuel for thought”, Letters, 2 March).

We do not believe that the purpose and dynamics of Test 1 are widely understood. Indeed, we challenge university finance directors to explain to their executive teams precisely why this test exists, precisely why it forces counterproductive investment decisions, and what the effect is on any deficit. If they cannot, they should, at the very least, demand that the USS publish alternative valuation figures with Test 1 absent to show the huge effect that it has. Better still, they could call for its removal.

For universities to lose a pension fund as healthy as the USS would be careless. To lose it because of a measure that very few properly understand would be a travesty.

Sam Marsh
University teacher, School of Mathematics and Statistics

Matthew Malek, lecturer
Department of physics and astronomy
University of Sheffield

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