Uss

kidmugsy

From time to time I have commented here that the financial position of the Universities Superannuation Scheme leaves a bit to be desired. I have been pooh-poohed. And yet:
http://www.bbc.co.uk/news/education-24657049

A Defined Benefits scheme that thrives is a wonderful thing, but one that's in difficulties is a horror show, causing its members endless anguish. (Unless, of course, those members are given unlimited access to taxpayers' wallets; but USS is a private scheme, so no luck there.)

At least with Defined Contribution schemes your money is tucked away safely and managed by the member, rather then left to the mercies of the bigwigs who run the scheme.

I always enjoy pointing out that the great pension robber, Robert Maxwell, was a keen Labour man. It couldn't be, could it, that the Universities' ruling class that has brought this about is also predominantly Labour? Do you know, I suspect it could.

hyubh

kidmugsy wrote: »

And yet:
http://www.bbc.co.uk/news/education-24657049

That article's a bit simplistic IMO in trying to understand where Ralfe is coming from here (a man who clearly knows his stuff, but has strongly-held and not entirely orthodox views). E.g., the line about FRS 17 seems to imply it is only relevant for schemes fully in the private sector and doesn't involve discretion about the assumptions used, neither of which is true.

If you watched the program, was anything covered about the different sections of the USS? If it's thought that something needs to be done, then an obvious possibility would be to close the final salary section and move everybody into the career average one (the accrual rates are identical, so I would imagine the CARE section involves a significant saving for the fund).

At least with Defined Contribution schemes your money is tucked away safely and managed by the member, rather then left to the mercies of the bigwigs who run the scheme.

You're being absurd again. If the USS became DC, then future members would lose out terribly.

It couldn't be, could it, that the Universities' ruling class that has brought this about is also predominantly Labour? Do you know, I suspect it could.

Overall, the previous Labour government did a pretty good job on pensions IMO - setting up the PPF, reform of police and fire pensions, the A-day simplifications as a package even if they couldn't fully realise the original unrealistic hopes for them, etc. Care to disagree?

kidmugsy

hyubh wrote: »

You're being absurd again.

How can a statement of fact be "absurd"?

hyubh wrote: »

If the USS became DC, then future members would lose out terribly.

But I didn't suggest anything of the sort - I simply pointed out that in a DC scheme the !!!!-ups you are exposed to are your own. Whereas, as is clear, the !!!!-ups at USS are the big-wigs' doing. Moreover "future members" can, happily, look after themselves - if someone doesn't find the pay and conditions of the universities attractive he'll go off and do something else. Eventually someone will come along who will settle for them. That's fine: any problems are prospective and people can take up a career with their eyes open. It's the retrospective nature of Defined Benefits fiascos that causes so much pain.

I first became alerted to USS's problem by an FT article in 2005 or so. The journalist explained the problem. Then came a reply a few days later from a USS apparatchik, whose counterarguments were so feeble that I was left wondering at the calibre of people running the fund.

Now Ralfe's comments imply that he thinks that the recent upheavals at USS haven't been big enough to resolve the problem.

hyubh

kidmugsy wrote: »

How can a statement of fact be "absurd"?

What 'fact'? The only 'fact' here is that almost all the time, the replacement of a DB with a DC scheme costs members dearly.

Whereas, as is clear, the !!!!-ups at USS are the big-wigs' doing.

What '!!!! ups'? How large a pension liability is depends on the assumptions used. What are the key ones in dispute here, with the USS and its actuary on one side and Ralfe on the other? Like I said, that article gives no indication of the substance of the disagreement - mentioning FRS 17 may sound good and technical if you know absolutely nothing about the subject, but it's pretty meaningless without further clarification.

It's the retrospective nature of Defined Benefits fiascos that causes so much pain.

If the final salary section closed tomorrow, accrued benefits would remain.

I first became alerted to USS's problem by an FT article in 2005 or so. The journalist explained the problem.

Go on then, tell us what the 'problem' is.

Then came a reply a few days later from a USS apparatchik, whose counterarguments were so feeble that I was left wondering at the calibre of people running the fund.

Blah blah blah, more handwaving. What counterarguments?

kidmugsy

I've found the interview with Ralfe. He says that USS is "in denial". They certainly were in 2005 so I'm not too surprised that they are again.

http://www.bbc.co.uk/iplayer/episode/b03ffw8v/Newsnight_24_10_2013/

If the biggest private sector scheme in the country is in trouble, how will the Pension Protection Fund cope? Could it afford to? What would be the consequence for the other private sector schemes?

hyubh

kidmugsy wrote: »

I've found the interview with Ralfe. He says that USS is "in denial".

!!!!!! - about what exactly!

That said, the USS's response isn't being very specific either:

http://www.uss.co.uk/news/Pages/ResponsetocommentsinNewsnightprogrammeregardingUSSfunding.aspx

Probably not a great idea to highlight the USS is 'cash positive' - while an open DB scheme clearly doesn't want to be cash negative, most of the unfunded public sector schemes are cash positive too, and this says nothing about historical liabilities, i.e. what I would assume is actually under discussion.

Wilkins

Not seen the interview, but if he is sticking to the FRS 17 basis, then I can see his point. But is the FRS 17 crystal ball any good or any better than others?

It seems a bit odd to me to assume that DB scheme liabilities get worse when corporate health get better (and thus AA bond yields reduce), since equities usually represent the majority of scheme assets.

Having said that, it seems to me that general USS health is not so good as it used to be some years ago. Not really worried yet, though, as I think we need at least two further triennial valuations to assess the likely effects of the new funding arrangements.

hyubh

Wilkins wrote: »

It seems a bit odd to me to assume that DB scheme liabilities get worse when corporate health get better (and thus AA bond yields reduce), since equities usually represent the majority of scheme assets.

Right, though the Ralfe guy is strongly against equities representing the majority of a pension scheme's assets in the first place - check out his website (http://www.johnralfe.com/). That's why I referred to his views as strongly held but somewhat unorthodox.

Having said that, it seems to me that general USS health is not so good as it used to be some years ago.

Isn't the argument (right or wrong) that the USS have been using dodgy assumptions for a while...?

hugheskevi

since equities usually represent the majority of scheme assets.

Purple Book 2012 shows the percentage of scheme assets in equities is 38.5% (Table 7.2, page 56).

The USS targets 50.5% equities (annex 4, page 16).

Wilkins

>Right, though the Ralfe guy is strongly against equities

I see what you mean. I don't criticise other religions, though

>Isn't the argument (right or wrong) that the USS have been using dodgy assumptions

Don't know but having 19% as alternative investments seems a bit iffy to me!

>the percentage of scheme assets in equities is 38.5%

Currently 50%, down from 56% last year, according to report.

Southend1

hugheskevi wrote: »

Purple Book 2012 shows the percentage of scheme assets in equities is 38.5% (Table 7.2, page 56).

The USS targets 50.5% equities (annex 4, page 16).

Is this difference between USS and average allocation because USS is open to new contributions whereas most DB schemes are now closed?