There has been no shortage of commentary on USS over the last year. It has come from many sources, with various motivations. I sympathise with our members, who would like, I am sure, a simple, unfiltered account of how USS has performed.
We have tried: endeavouring to provide member updates at key points of the year, and providing much more detailed information on our website for those who seek greater detail.
Today we publish our annual report, which gives a good factual account of our performance in the last financial year.
In summary, it’s been a year of contrasts.
We’re proud of where we are at an operational level: we are delivering high standards in investment performance, reducing the overall cost of the scheme to employers and members very substantially. We are also achieving turnaround times on all key member event processes that are much, much more responsive than ever before, thanks to our new administration platforms.
So we provide a very good value service, to employers and members. These are objective views, supported by benchmarking analysis against comparable offerings, nationally and internationally.
On the ‘still more to do’ side of the coin, the development of our digital platform – My USS – while substantial since its launch 18 months ago, has much more road to go. The 75,000 members who use this portal agree that straightforward transactions are easy and accessible, but we know that information is not yet as structured or as helpful as it might be.
The hybrid structure of the scheme provides more options, and more decisions for members at key points of joining, leaving, and retiring, and we plan to do much more for our members in this area, too.
Our objective over the next few years is to provide easier ways for members to exercise their options for their investments and lump sums, and to provide more structured help and support in decision making. Much of our investment in the offering over the next few years will be in these areas.
Of course, this year has also seen perspectives of USS pulled to and fro by the 2017 valuation and commentators with polarised agendas. At various points we were accused of being reckless for taking too much risk in our investment strategy, or of being recklessly prudent for our plans to invest more in ‘safer’ bonds.
I don’t believe that anyone looking at the detail objectively would find either of these statements to be true.
Our view is that prospectively lower returns on investments, and the desire to keep the volatility of the scheme’s funding position within boundaries acceptable to the trustee and our sponsoring employers, has increased the cost of future pensions substantially.
We understand the consequences of this conclusion, on both members and participating employers, but it is quite clear that the cost of insuring the future is even more expensive than it was at the last valuation, and the risk associated with going against the general consensus on future returns is higher, and so potentially more catastrophic if proved wrong.
As our annual report shows, we’ve engaged with our stakeholders (UUK and UCU) very extensively, and in great detail, over the course of two years on this issue. They have been unable to reach a consensus as to how to resolve the challenges it presents. We have extended the timescales allowed for these discussions to such an extent that we have now missed the statutory deadline for completing the valuation. We are now engaging constructively with UCU and UUK’s Joint Expert Panel to help find a way forward.
For a private pension scheme and a major financial institution, we’ve provided a significant public disclosure of key documents and analysis, yet we continue to be accused of creating “smokescreens” to hide bigger funding problems or, conversely, of “manufacturing” deficits that don’t exist.
Again, while I understand the strength of feeling the issues at hand have generated, I don’t believe that objective observers will find either of these statements to be true.
Our priority has to be our responsibility to ensure that the pensions our members earn will be paid when due – be that today or 60 years from now. We need to have a high degree of confidence that the scheme will be able to do that, without placing unmanageable demands on the future operating models of employers or the pensions of future members of the scheme.
Our approach to the valuation, shaped by our legal and regulatory obligations, has been entirely true to that purpose.
It has been alarming, therefore, to see the confusion, concern and distrust that some of the commentary has generated amongst our members. Whatever the contributions of others might have been in that outcome, we clearly failed to communicate simply enough, convincingly enough, or from a basis of sufficient trust, to make the key messages clear. We will therefore review our process for the valuation with employers, particularly the early discussions regarding their risk appetite and capacity.
Ultimately, our task has been to make assumptions about how the world will turn at a time of significant uncertainty. These conditions have seen the number of private defined benefit pension schemes in the UK that are still open to new members fall from circa 3,500 in 2006 to around 700 today.
Most employers have given up in the face of these challenges.
We do not believe that providing defined benefit pensions is impossible, but it must be done in a framework that allows adjustments to be made that ensures the scheme can avoid the worst future outcomes, and sometimes these can involve challenges for certain cohorts of members.
This has presented difficult questions and challenges but we have faced up to them because, while opinions of USS may vary depending on who is talking, the trustee’s motives haven’t changed in 40 years.
Compared with many other private schemes, USS is an excellent pension plan. The world has changed around us and we must to respond to that, but anyone reading our annual report objectively will find good reason to conclude we are doing a good job in difficult circumstances.