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De-risking: increasing the deficit so that it can be calculated more easily

October 20, 2014
Bosch - A pickpocket works alongside  a conjurer

Bosch – A pickpocket works alongside a conjurer

De-risking sounds like a good thing to do, doesn’t it? You don’t want risk. If you’ve heard this term in relation to the current USS pension debate, you might have understood that USS and the Employers Pension Forum are talking about ‘de-risking’ the scheme. Let’s have a look at what they say about this on the Employers’ Pension Forum:

 “• The USS Trustees are also concerned about the risk that the deficit could continue to grow and aim to reduce the risk of this happening in the future. They propose to do this by reducing the investment risk that they take with the USS’s assets.
• If the USS Trustees’ proposals to reduce investment risk were to go ahead, this would increase the deficit from £7 billion to £13.1 billion. This would push the contributions required from employers and employees to unaffordable levels. Therefore the USS Trustees have prompted a review of the benefits provided by USS in order to ensure that USS remains affordable.” (accessed 19 October 2014)

Let’s take that bit by bit:

1. They don’t want the deficit to grow.
2. To do this, they’ll reduce risks taken with assets – this means they’ll sell some investment vehicles that are a bit riskier (for example, stocks and shares) and replace them with investment vehicles that are less risky (like bonds and gilts).
3. If they de-risk in this way, the deficit will in fact go up, not down (but see 1.). This is because the lower risk attached to an investment vehicle, the lower return you get for your investment.
4. If they do this, it will make the pensions scheme too expensive.
5. It is this de-risking that is causing the need to cut our pensions.

Let’s remember that the deficit is not a real sum. That is to say it does not reflect the actual health of the pensions scheme and its investments. The scheme has in fact a £42 billion surplus, and its debts this year were around £1.6 billion.

The deficit is a calculation that is required by regulations, and originates in single-company schemes. The requirement to calculate a deficit (or surplus, of course) is intended to protect pensioners if the company goes bust. The company needs to be able to prove it can pay all future pensions. So, the ‘deficit’ is a calculation of all the money in the pot at one point, minus all the pensions (and other costs) payable now and in the future. Put in plain English, the deficit calculation and requirement is:

“Is there enough money in the scheme now, not including any future contributions, to pay all current and future pensions? If not, you have a deficit and you need to find ways of removing it by raising money in the scheme or reducing your outgoings.”

Now, of course, the USS scheme is a multi-employer scheme, so there’s no question of all employers going bust at the same time. So there is nothing ‘real’ about the deficit.  The consequences of that theoretical sum are very real, though.

What we are being told in the quotation from the Employers’ Pension Forum is that the need to reduce your and my pension is not because of this fictional deficit, but because by ‘de-risking’ the scheme by selling profitable investments and buying less profitable investments they are deliberately and knowingly increasing the imaginary sum that has such an impact on us.

So why are they de-risking, and thereby increasing the deficit that  they must respond to by taking our money? Because of ‘volatility’ they tell us. The volatility they speak of is in the deficit, and only in the deficit: “Since 2011 this deficit has increased significantly and has been very volatile. In June 2013 it was £7.9 billion.” (same url)

Even senior managers seem to misunderstand this issue of volatility, and they believe that the scheme’s investments itself suffer from volatility. This is not true. There has been clear growth that has not only been consistent with the stock market, it has even beaten the FTSE in eight years out of ten in the last decade.

No, the volatility they want to remove is simply that the calculation of the deficit goes up and down unpredictably. This is partly because USS use two different means for calculating the assets and the liabilities. The assets are calculated at market value. The liabilities – mostly all future pensions to be paid – are calculated using a system that assumes the prices of gilts for future calculations. So, to make the predictions of liabilities more reliable, and less ‘volatile’, they buy more gilts. The consequence of which, as we have explained, is to increase the deficit. And so we have to lose money from our pension. So that they can better predict a fictional number. There are Vice-Chancellors who do not seem to understand this basic premise to what we are going through.

De-risking is just a process by which the deficit is increased as a result of wanting to calculate it more reliably.

And, remember – we can’t say this enough – the deficit is not real. The current deficit was calculated at 31 March 2014, so though it does include all the future pensions to pay out, it does not include any of the contributions we have made into our pensions since March. Or any that we are likely to make.

Universities UK misleading staff? Leeds management’s position?

October 18, 2014

We are curious to know if the leadership at our university agree with the position from the University of Oxford on the issue of recently released pension projections. Oxford state that the UUK figures comparing the current scheme with the proposed pensions scheme are “misleading because they assume no promotion or incremental salary increases over time”.

Our University’s management has not yet made clear if they agree with Oxford, and they may therefore be content with modelling that does not assume promotion or incremental salary increases. They have not yet made their position clear on this matter.

The University of Oxford’s working party state: “We feel that we should show our staff examples based on a realistic and typical careers, including the kind of promotion that they might reasonably expect.”

It is noteworthy to see a University management recognising an obligation to speak for their staff in this way, and recognise a need to give staff appropriate data and information. Until we hear otherwise, at Leeds we can only for now assume our management are satisfied with the briefing illustrations that they have been given that do not do represent typical career progressions (and therefore mathematically downplay the damage to retirement pension that the proposals they promote will cause).

UCU have not only made their actuarial calculations available, they have also made the actuarial assumptions fully transparent. To date, The Employers’ Pension Forum has not.

Given the EPF’s embarrassing climbdown on over-exaggerated mortality figures, we’re seeing a theme develop here.

Longevity: An admission of misinformation?

October 7, 2014

The employers’ pension forum site has silently adjusted a claim it made about the impact of longevity, when it was pointed out to them that their stats were incompatible with those of the Office of National Statistics. The figures they used were not credible, and plainly overstated the case by a considerable margin compared to the official statistics. When they were contacted about their original statement, they made no acknowledgement of the communication, but changes were made to their website. Here’s the wording on their website before they were told they were hugely inflating the figures:

Before - the overstatement

And here’s the wording after:

After the changes

Misinformation? You decide.

Longevity does certainly play a factor in deciding future benefit, but it acts here as a smoke-and-mirror tactic. The key reason for a growth in the notional deficit is an new investment strategy of ‘de-risking’ which involves quite consciously increasing the notional deficit by investing more in low-yield investment vehicles. The UCU are arguing for a more sensible and growth-assuring investment plan. Issues of longevity are left in the shade by these matters, but are often wheeled out to convince people to stay on-side as they are far more easy to communicate and understand than, for example, future gilt yields. But what we have yet to learn is – to what degree did these extreme and inaccurate predictions of longevity impact on the calculations that are now being used to justify detriment to your pension? By the fuss they have made about longevity, one would expect the impact to be quite significant… We will blog more on this soon.

We’re grateful for the work of colleagues at Warwick UCU for revealing the above material:

Anatomy of a desperate accusation

October 3, 2014

A reflection by Mark Taylor-Batty, UCU president at Leeds

So there I was, emailing personal tutees to help with some discovery module timetable issues, and preparing for a PhD supervision meeting, when into my inbox dropped an email that contained a link to a page on which it told me that I was misrepresenting facts to hundreds of my colleagues. And hundreds of my colleagues were being told I was doing this.

Now, that’s a bit harsh, don’t you think?

I’ve been doing my best over a period of weeks to digest significantly difficult and complex data, history and information around the current ‘deficit’ of the USS scheme and the employer proposals that were made public over the summer, and to present that in accurate, straightforward ways for friends, colleagues and UCU members. And now they publish a statement that says I’m misrepresenting everything. Ouch.

Deep breath.

I looked more closely at the statement, and something about its syntax, its structure, smacked of the awkward. This was a statement in the flux of panic. Look at it:

The UCU modelling that is provided as supporting evidence for the ballot for industrial action is premature and ill-informed. By disregarding the modelling being considered jointly by UCU and UUK, UCU has provided misinformation to its members even though the employers’ proposals for reform have not yet been finalised and are the subject of continuing discussion between UUK and UCU.

Does it seem right to you? Let’s consider it part by part:

‘The UCU modelling that is provided as supporting evidence for the ballot for industrial action is premature and ill-informed.’

Grammatically, in this sentence, it is the ‘modelling’ that the subject of the adjectives ‘premature’ and ‘ill-informed’. But later in the following sentence they say they are doing modelling too. So if now is the time for modelling, how is one set premature and the other not? Surely it is reasonable and responsible for a union to provide detailed evidence for its members when asking them to consider industrial action. You need to do that before the ballot for industrial action, so how is our work ‘premature’? What would they say if we called for industrial action without presenting evidence? And how is that modelling ‘ill-informed’?  The UCU have published the actuarial basis for the modelling in all its tedious detail. You can go away and look at that detail and decide if the assumptions behind our calculations are reasonable, or if they have been skewed to boost the figures. Clue: they haven’t. The employers have not provided you with any such calculations or assumptions, so we don’t know how well- or ill-informed their modelling is, but it’s quite clear that ours is informed to the last decimal point and actuarial footnote.

And now the rump of it:

‘By disregarding the modelling being considered jointly by UCU and UUK, UCU has provided misinformation to its members even though the employers’ proposals for reform have not yet been finalised and are the subject of continuing discussion between UUK and UCU.’

Look at the structure of the second sentence:  ‘By disregarding… UCU has provided… even though’. It doesn’t know which way it’s turning. It strings together numerous clauses that struggle for attention as the mind reads the sentence through to the end. This has not been written calmly, or with attention to meaningful detail. It clearly wants to DO something much more than it is able to SAY anything, and what it wants to DO is have you come out of its messy structure thinking that the UCU are not being honest. That’s its message. But its component parts don’t really lead to that, do they?

Firstly, there is a claim that UCU are disregarding the modelling being jointly considered by UCU and UUK. It is not possible to both consider and disregard something simultaneously.

Secondly, following the logic of the structure and syntax, it is ‘by disregarding’ that ‘UCU has provided misinformation’. This does not even make sense. Does nobody check the copy? The act of disregarding a mode of modelling – which we also learn we have not done – does not in and of itself mean that misinformation is created. If we want to generate misinformation we do it by creating something, not disregarding something. Surely.

Then, rather than starting another sentence, a third clause continues the dawdle away from sense. The first two clauses want to operate together (‘by disregarding… the UCU has…’) and then the the third wants to take ownership of the second (the UCU has… even though…). If this was a student’s work, it would have my track comments all over it.

Let’s look at that ‘even though’. Apparently UCU has provided misinformation even though the employers’ proposals are not finalised, those clauses state. What, should we wait for the finalised proposals before we give misinformation? Because that’s what that ‘even though’ is doing. Must do better.

So, actually, it is not clear what the source of the misinformation is, because of the garbled and poor syntax which sits around that accusation.

Now, enough textual analysis, let’s consider the facts. The employers published some draft proposals over the summer. UCU took them and let members know – this is informing members, not misinforming members. We then modelled some outcomes for pensions based on the employers’ published draft proposals and a set of common principles (age, length of service, inflationary possibilities, you name it) all of which are perfectly usual for such calculations. Independent actuaries did it all. This is informing members, not misinforming them. Going further, to be transparent, we published the assumptions, so that members were fully informed about how we had made the calculations. In what reality is this misinformation?

But it gets even more bizarre. On the very same page that the University of Leeds place this poorly proofed and badly structured UUK accusation against me and my colleagues, they offer links (at the bottom) to the exact same set of proposals that the text seems to want to claim is not ‘final’ yet. The self same set of proposals that have informed the UCU information and calculations. Go figure. They are screaming ‘don’t trust the UCU, they are not telling you the truth when they tell you the exact detail of the links we are here giving you’.

Let’s be clear: the accusation of misinformation is itself an overt and not too canny act of misinformation. It will convince the people who want to be convinced anyway, but nobody else.

All this indicates a rather desperate response to USS members’ growing disquiet. To date, the employers have chosen to remain silent on this matter. Why? They have known about it for the best part of the year, but have opted to say nothing to their staff, despite knowing the devastating impact their proposals might have. They break their silence – surprise surprise – the day after the ballot opens. They complain that we have offered calculations backed up by actuarial advice, but do not offer you their calculations backed by actuarial advice. Why?

Who do you trust?

File under: ‘employers’ own goal’.

Save Healthcare

February 16, 2014

LUU campaign video #savehealthcare

UCU, UNITE, UNISON petition to Save Healthcare Training at the University of Leeds

Please Sign

Current plans in the University seem set to lead to:

1) the closure of: Pharmacy, Audiology, Cardiac Physiology, Counselling and Psychotherapy

2) the possible closure of Diagnostic Radiography and Social Work

3) the retention of Nursing and Midwifery, subject to “transformation of the staff base.”

The Review that the University has initiated seems likely to have unintended consequences and to impact on:

1) National skills shortages

2) The national importance and reputation of some of the disciplines within the school

3) The quality of education available to students

4) The need of local people (many of them women returners) to be able to study in Leeds

5) The quality of clinical care available in West Yorkshire and surrounding areas.

Please Sign

Just a few of the people…

January 24, 2014
tags: , ,

…telling us that our universities can’t afford pay rises in line with inflation.


What’s in a name?

December 13, 2013

Private Eye No 1355

13th December 2013 page 31

Following on from some paragraphs about the high cost of renaming Leeds Met …

“Not to be outdone, the separate University of Leeds then announced on 29 November that it was to name its new undergraduate library after a living, sex-addicted, tax dodging Tory donor and peer, Lord Irvine Laidlaw. Leeds graduate Lord Laidlaw recently gave the university £9m, its largest ever donation.

A previous £1.15m donation by Lord Laidlaw to the university in 2011, to fund two scholarship schemes prompted the Leeds Student newspaper to call for tighter restrictions on whose donations would be accepted.

The multi-millionaire was criticised by the House of Lords Appointments Commission for failing to give up his tax exile status in Monaco despite promising to do so on becoming a life peer in 2004 (Eyes passim). While ducking tax on the £700m sale of his events business, he has donated millions to the Conservative party as a whole and the Boris Johnson’s mayoral campaign. In 2008 he announced that he was seeking treatment for sex addiction after the News of the World revealed that he was flying in pricey prostitutes for champagne-fuelled orgies – hopefully not the kind of thing that will be happening in the new Laidlaw Library.”


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