An update from the chair

The Panel would like to reiterate its latest call for evidence and reassure all stakeholders that the Panel is on track to publish its second report in September 2019.

The Panel thanks all those who have contributed so far and calls for evidence to aid the second part of this phase of its work.

This call for evidence focuses on:

  1. potential principles that could underpin future valuations and support the scheme’s sustainability;
  2. alternative paths to the valuation; and
  3. questions of how risk is shared in the scheme, including approaches to contributions and mutuality.

You can find the call for evidence here.

If you still wish to submit evidence in response to the Panel’s first call for evidence, which looked at the valuation process and governance arrangements, please feel free to do so. Please ensure that submissions reach us by the deadline below.

Please submit your comments to: submit@ussjep.org.uk by June 14 2019.

Joanne Segars OBE

Further phase two meetings of the Joint Expert Panel

29 April and 2 May 2019

The Joint Expert Panel held its sixth and seventh meetings of their Phase 2 work. The Panel considered feedback on a series of interviews with a range of stakeholders involved in the valuation and governance process to better inform their findings.

The Panel held an evidence session with the Pensions Regulator to discuss the valuation process and the conclusions of the first report of the Panel. The discussion considered the current regulatory framework within which the valuations take place.

The Panel held a further evidence session with representatives of the Chairs of University Council (CUC) on issues relating to the valuation process. This session was helpful in aiding the panel’s understanding of the valuation process from the institutions’ perspective.

Over the course of both meetings the Panel have considered possible principles that could underpin future valuations and the question of scheme sustainability.

Taking into account their terms of reference and the evidence received to date, the panel discussed the second call for evidence. As always, the panel is keen to hear from a wide range of stakeholders with an interest in the scheme.

Earlier in the year the panel issued a call for evidence which focused on the valuation process and its governance. The panel is grateful for the responses received.

The panel is now issuing a further call for evidence to aid the second part of this phase of its work. This call for evidence focuses on:

  1. potential principles that could underpin future valuations and support the scheme’s sustainability;
  2. alternative paths to the valuation; and
  3. questions of how risk is shared in the scheme, including approaches to contributions and mutuality.

You can find the call for evidence here.

Please submit your comments to: submit@ussjep.org.uk by June 14 2019.

Second call for submissions

The Joint Expert Panel on the Universities Superannuation Scheme (USS) is continuing its second phase of work on the USS valuation.

The first part of our work has focused on the valuation process and its governance. It included a consideration of the roles and involvement of UCU and UUK in the valuation process so that a more collaborative process can be adopted for future valuations; the interaction of bodies with a formal role in the valuation, including the Trustee and JNC; and considering the potential for the involvement of Scheme members in the valuation process and how more effective engagement with employers can be achieved.

The Panel issued a call for evidence on these issues in February and which closed in March. We are very grateful for the responses received which have been considered by the Panel.

The Panel is now focused on the second part of it work. This considers how the long-term sustainability of the Scheme can be secured. It includes:

  1. Developing an approach to future valuations that is clear (and clearly understood by stakeholders) and which can deliver both a sustainable scheme and a shared set of principles.
  2. An exploration of different paths to the valuation of technical provisions and other aspects of the valuation methodology, including Test 1.
  3. Considering questions of risk sharing, including adopting a different approach to contributions (which could, in turn address issues of intergenerational fairness and equality); examining further the question of mutuality and the question of employer appetite for risk; and the potential for risk sharing.

We are particularly interested in hearing views and evidence on principles that could be adopted by the stakeholders and that could underpin an approach to future valuations; issues relating to supporting the long-term sustainability of the scheme; and approaches to the valuation methodology. You should feel free to respond to all three parts of the call for evidence or any one part

Submissions on the above matters or comments for the attention of the Panel are warmly welcomed and should be sent by 14 June 2019 to submit@ussjep.org.uk

We look forward to hearing from you.

Second and third phase two meetings

The Joint Expert Panel held its second and third meetings of phase two of their work recently. The panel considered updates on the 2018 valuation from stakeholders UCU and UUK.

The first part of phase two is focussing on governance issues relating to the valuation process. The chair has conducted a number of structured interviews with a range of stakeholders to inform the panel’s discussions.

An evidence session was held with Professor Gordon L. Clark. Professor Clark has been an elected member of the Oxford University’s Socially Responsible Investment Committee, is an employer-nominated trustee of the Oxford Staff Pension Scheme, is a Founding Governor of the UK Pension Policy Institute, and advised The Kay Review on Equity Markets and Long-Term Decision Making. He is currently advising the Australian Fraser Review of pension fund governance.

A further evidence session was held with Rory Murphy Chair of MNOPF Trustees Limited and Andrew Waring CEO of MNOPF Trustees Limited and Ensign. MNOPF is the multi-employer defined benefit pension scheme set up for officers of the British Merchant Navy, now closed to new members and future accrual but with joint employer and union governance arrangements. A range of issues were covered including the importance of stakeholder confidence in the process, ongoing valuation checks and the relationship with The Pensions Regulator.

The panel were also informed by a considered range of submissions from across the sector and outwith on this question. The panel thanks all those who took the time to submit and will be informed by the detail provided by written submissions and the evidence sessions in reaching their conclusions. Members, employers and interested third parties have all contributed and the panel places on record their thanks for the richness in submissions.

Further interviews will be held with USS as the panel move into planning the next phase of their work looking at how the long-term sustainability of the scheme can be secured within the terms of reference agreed for the Joint Expert Panel.

JEP action points

The Joint Expert Panel (JEP) held its first meeting on 4th February to discuss phase two of its work.

This will be divided into two interlinking parts, the first of which will look at the valuation process and governance. The second part of the Panel’s work which, will start later in the year, will consider how the long-term sustainability of the Scheme might be secured through the development of a shared set of principles and will revisit the valuation of technical provisions and other aspects of the valuation methodology, including Test 1.

UCU nominated Bryn Davies joined the Panel to replace Catherine Donnelly for this phase who has stood down for personal reasons. The Panel expressed their thanks for all her work in phase one.

The Panel heard from John Chilman, Chair, Railways Pension Trustee Company Limited, to explore issues relating to the valuation process, governance and interaction with external actors in a large scale, multi-employer, open defined benefit pension scheme.

Call for submissions – Joint Expert Panel

The JEP has recently started its second phase of work on the USS valuation. The second phase has two parts, the first of which is concerned with the valuation process and governance.

The second part of the Panel’s work which, will start later in the year, will consider how the long-term sustainability of the Scheme can be secured through the development of a shared set of principles and will revisit the valuation of technical provisions and other aspects of the valuation methodology, including Test 1.

We would ask stakeholders to hold back any comments on this wider matter until later in the year.

The first part of the JEP’s work includes consideration of:

• The roles and involvement of UCU and UUK in the valuation process so that a more collaborative approach could be adopted.
• An examination of the interaction of the various bodies with a formal role in the valuation process, including the trustee and the JNC.
• The potential for the involvement of Scheme members in the valuation process and how more effective engagement with employers can be achieved.

The Panel is seeking submissions from stakeholders and others on the above subjects and is particularly interested in views on improvements that could be made to:

• The valuation process, and decision-making (rather than, at this stage of its deliberations, the methodology) and in particular the content and timing of different aspects of the process and engagement between the scheme and the various stakeholders; and
• The governance of the valuation process and in particular the role of different parties including UUK, UCU, the JNC, the trustees and others in providing that governance.

Submissions on the above matters or comments for the attention of the Panel are warmly welcomed and should be sent by 15th March 2019 to submit@ussjep.org.uk.

The Panel will issue a further call for evidence in respect of part two of its enquiry in due course.

Report of the Joint Expert Panel

The first report of the Joint Expert Panel (JEP) is published today (13 September). The Panel was set up by the University and College Union (UCU) and Universities UK (UUK) following the recent industrial dispute over the Universities Superannuation Scheme (USS). The Panel comprises senior figures from the pensions sector as well as academic experts from within higher education and is chaired by Joanne Segars OBE.

The first report has undertaken a retrospective review of the 2017 valuation, including an assessment of the methodology, assumptions and process underpinning the valuation. Arising from this, the Panel has explored the scope for possible adjustments to the methodology which would allow the valuation to be concluded.

In launching the report Joanne Segars said:

“In reaching our unanimous conclusions and recommendations the JEP has, of course, had the benefit of hindsight – a luxury not available to the Trustee as it worked to a tight timetable to complete the valuation. Neither has it been the approach of the Panel to be critical of any party that has been involved in the valuation. Our observations, conclusions and recommendations are intended to be constructive and should be read in that spirit.”

The Panel unanimously recommends four areas where adjustments to the valuation should be considered:

  1. A re-evaluation of the employers’ attitude to risk, which would result in a re-evaluation of the reliance on the sponsor covenant.
  2. Adopting a greater consistency of approach between the 2014 and 2017 valuations, which affects the scale and timing of deficit recovery contributions.
  3. Ensuring fairness and equality between generations of scheme members by smoothing future service contributions.
  4. Ensuring the valuation uses the most recently available information which means taking account of recent market improvements, new investment considerations and the latest data on mortality, for example.

In addition, greater weight should be given to the unique features and strengths of the higher education sector. The Panel believes the combined effect of these changes would satisfy the employers’ overall appetite for risk as well as members’ desire to maintain broadly comparable benefits and would provide a constructive negotiating space for the stakeholders to reach a consensus on the way forward. It is the view of the Panel that the changes proposed are consistent with the Trustee’s fiduciary duties and the objectives of the Pensions Regulator and provide an opportunity for stakeholders to resolve the dispute.

Adjustments in each of these areas would have a material impact on the valuation and resulting contribution increases. The level of benefits is a matter for the stakeholders to negotiate. However, it is the Panel’s belief, based on independent actuarial analysis, that the full implementation of these adjustments could mean total required contributions estimated at 29.2% to fund current benefits (minus the 1% match). This compares to the current rate of 26% (18% of salary paid by employers, 8% by employees) and the rate of 36.6% from April 2020 which is proposed by USS, based on the valuation as it stands.

Commenting on those recommendations which propose adjustments to the valuation Joanne Segars said:

“The Panel does not underestimate the practicalities of concluding an actuarial valuation so long after the process began. However, the Panel believes it would be in the public interest if all stakeholders, including the Regulator, could find a way forward to implementing our recommendations within the 2017 valuation.”

The Panel also looked in detail at the methodology, assumptions and tests employed by the Trustee, and particularly at USS’s ‘Test 1’ which underpins the 2017 valuation. In the Panel’s view this test has assumed too much weight in determining the valuation.

The Panel concluded that this and other issues should be addressed by Phase 2 of its work which should seek to determine whether there is an alternative methodology for future valuations that could both provide long-term stability for the Scheme and enjoy the support of all parties. Phase 2 of the JEP’s work should also include a wider review of the involvement of UUK and UCU in future valuations so that a more collaborative approach can be adopted which would help to restore confidence in the Scheme.

Looking forward Joanne Segars said:

“We believe that our constructive and practical proposals for adjustments to the valuation can be implemented quickly and act as the cornerstone for a negotiated settlement. Ultimately it will be for all the parties to decide whether to respond positively, but we believe that the report provides a genuine opportunity to turn the page, to focus on the long-term stability of the USS and rebuild trust and confidence in the Scheme.

“Our report and its recommendations do not address all the issues faced by the Scheme. We believe further work is required by the JEP. This should include developing an approach to the valuation that is clear and which can deliver a sustainable scheme based on a shared set of principles.

“I would like to thank the many scheme members, employers and experts who have submitted views and evidence to the JEP. I would also like to thank USS for their cooperation and for the considerable resources they have laid at our disposal. While we have been grateful for all the support we have had the conclusions are ours alone.”

Notes:

  1. The Panel’s members are: Joanne Segars OBE (Independent Chair), Ronnie Bowie (appointed by UUK), Sally Bridgeland (appointed by UUK), Chris Curry (appointed by UUK), Catherine Donnelly (appointed by UCU), Saul Jacka (appointed by UCU), Deborah Mabbett (appointed by UCU).
  2. The Panel’s purpose, as set out in its terms of reference, was to make an assessment of the 2017 valuation; focus in particular on reviewing the basis of the scheme valuation, assumptions and associated tests; agree key principles to underpin the future joint approach of UUK and UCU to the valuation of USS. The agreement set out that the Panel would take into account: the unique nature of the higher education sector, intergenerational fairness and equality; the clear wish of staff to have a guaranteed pension comparable with current provision whilst meeting the affordability challenges for all parties; and the current regulatory framework.
  3. The executive summary is attached to this release. The full report is available below.

For media enquiries contact: chair@ussjep.org.uk

Executive summary of the Report of the Joint Expert Panel

Report of the Joint Expert Panel

Further evidence heard from professional advisors

The Panel reviewed a number of recent submissions from stakeholders including employers, trade unions and individual members. These continue be helpful to the Panel, and we are grateful to all those who have taken the time to submit views and evidence. 

The Panel took evidence from PwC on their professional advice given to USS on the unique covenant of the UK higher education sector, and the diversity of the sponsoring employers of USS. In its discussion with PwC the Panel also considered the unique features of USS. 

The Panel also met with the actuarial advisors to UCU and UUK, First Actuarial and AON, to follow up an earlier session exploring the stakeholders’ assessment of the valuation process in greater detail.

In line with the Terms of Reference set by UCU and UUK, the Panel will publish its report in September. During meeting 8 the Panel went on to discuss its key messages and plans for publication. 

The deadline for submission of evidence is August 17 and you can make your contribution via submit@ussjep.org.ukAll submissions will be treated in complete confidence.

Joanne Segars, Chair, JEP
14 August 2018

Report of latest meeting and evidence session

The Panel heard from Ali Tayyebi (Scheme Actuary, Mercer) along with Jeff Rowney, Head of Funding Strategy, and Guy Coughlan, Chief Risk Officer of USS. This evidence session covered a range of topics including a closer look at Test 1, self-sufficiency, appetite for risk, calculation of discount rate and related issues.

In the discussion that followed, the JEP reflected on the initial presentations from USS having been informed by the evidence from other experts and submissions from stakeholders.  USS are committed to sharing a range of data relating to the valuation requested by the Panel.

Finally the Panel reviewed further work from the actuarial advisors of UUK (AON) and UCU (First Actuarial).

The Panel is continuing to receive submissions from stakeholders on a range of topics. A number of issues are more pertinent to phase two of the JEP’s Terms of Reference and the Panel will return to these submissions at a later point.  At the next meeting, the Panel will look at further evidence on scheme covenant and would welcome comments on this area.

Submissions should be sent to submit@ussjep.org.uk. All submissions will be treated in strictest confidence. In order to ensure that submissions can be fully considered by the Panel it would be very helpful if submissions could reach the Panel by 17 August at the latest.

Joanne Segars, Chair, JEP
31 July 2018

Panel hears from USS trustee chair

The Panel heard from Sir David Eastwood, the Chair of the USS Trustee Board.

He gave the Panel an overview of the valuation process from the perspective of the Trustee including: the sovereign role of the JNC in terms of determining benefits; the principles upon which the Trustee operates; the impact of missing the statutory timetable set by the Pensions Regulator for completing the valuation; the calculation of technical provisions; the imposition of cost sharing; and the Board’s view of its relationship with the JEP.

In the discussion that followed, the JEP considered issues around: the parallel processes of its own report and the decision of the Trustee to invoke cost sharing; the relationship between the Trustee and the Executive; the nature of the tests used by USS and possible alternatives; the performance of the various functions of the USS governance arrangements; the role of the TPR in this valuation process; the quality of information available to members and the Trustee’s communication strategy; and the extent to which the Trustee was engaged in an on-going update of the valuation.

The Panel also separately considered evidence from Professors Miles and Gandy of Imperial College who presented contrasting views of the valuation and the security of benefits. Despite their differing views, the Panel found both presentations helpful and thanked both Professors for their evidence.

Finally the Panel took evidence from EY Parthenon who had performed a review of the HE sector on behalf of USS in advance of the 2017 valuation, as part of its assessment on the strength of the sponsor covenant. This had considered the future growth of the sector and factors that could constrain that growth. This work had contributed to USS’s assessment that the sponsor covenant strength was strong.

The Panel continued to derive considerable insights from the submissions sent to it and remain keen to hear from stakeholders on issues relating to the valuation, including the tests which underpin it, the assumptions and process. Submissions should be sent to submit@ussjep.org.uk. All submissions will be treated in strictest confidence. In order to ensure that submissions can be fully considered by the Panel it would be very helpful if submissions could reach the Panel by 17 August at the latest.

Joanne Segars, Chair, JEP
17 July 2018