How solemn is the USS’ league of covenanters?

Dr Casey has been banging on about the USS for many years. He makes the same points obsessively with monotonous regularity and often using inflammatory language. First, the USS has not been “running a deficit” as he suggests. The scheme makes a large annual surplus from its investment portfolio and contributions which exceed pensions in payment. Last year its investments earned around £1.8 billion in dividends, interest, rent etc (not counting capital gains), pensions in payment were around £2 billion, and contributions from members £2.2 billion. The issue between USS and its members concerns how the distant future of the defined benefit scheme (for most members on salaries below £60k) is seen. It all depends on the method you use to find the present value of future pensions liabilities. It is this nuanced discussion about financial economics that Casey is sensationalizing. If the USS is seen as having to be managed in such a way that it can close to new members at any moment, then there could be a shortfall if investment earnings are very poor or university staff don't join up in such numbers. (Though they will not find a better deal than a DB pension.) On the other hand, if the scheme is valued assuming it stays open indefinitely, as a vital part of the HE system in the UK, with strong employer support, then it can invest its annual surplus to gain high returns in the long term, matching its pension liabilities, and there will be no shortfall. The biggest threat to the survival of the scheme is actually the ‘deficit’ - the asset-liability shortfall calculated assuming it will have to ‘derisk’ its investments towards low earning government bonds. The best and most efficient thing to do is to manage it as an open ongoing scheme, build up investments (and of course decarbonize). The main reason that people like Casey say the scheme (and other DB schemes) is in deficit is because of the blindly dogmatic way they value the pension liabilities. That has been the cause of all the pension scheme closures in the last ten years or so. That is due to the government’s Quantitative Easing policy with their setting of extremely low interest rates. There is no objective, or market value, for pension liabilities. That one needs to be conjured up, using a DCF formula, under the legally required statutory funding objective is the problem. It’s not the poor performance of the investments, which will do well enough provided we remain a capitalist economy. He mentions removing “Test 1 that was adopted in 2004 to ensure that it remains within an agreed comfort zone of investment risk”. Once again he is misleading. In truth Test 1 is being removed because it is based on a huge mathematical error that was pointed out by UCU negotiators. The real issue is whether the USS goes ahead with its notorious ‘derisking’ strategy of deliberately investing in bonds that are expected to lose money rather than equities that have a positive but more variable return. Derisking does not reduce risk except under extreme prudence. The USS crisis is of national significance and crucial to the future of British universities and in the present circumstances of the coronavirus requires government oversight, as does the state of universities. More than that, it is about the provision of pensions for future generations, something that is being ignored by present government policy. It is not simply a matter of the application of microeconomics of risk and return in a theoretical model.