Michael Otsuka Profile picture
Sep 5, 2018 โ€ข 20 tweets โ€ข 11 min read Twitter logo Read on Twitter
๐Ÿšจ๐Ÿ˜ฑ๐Ÿ˜ฅCalling all #USS members: Please read this, weep, and then retweet.
I now see that there is one important respect in which SAUL's DB is less good than #USS: for DB accrual from 2016, there is a 2.5% CPI cap on pensions in payment, w/ increases above the cap at the discretion of the trustees. This is much less generous than USS's CPI cap. 1/
2.5% cap does NOT apply to the revaluation of career average accrual before retirement. More generous USS cap still applies there. So SAUL's CPI revaluation remains much more generous than the March ACAS #USS proposal, w/ its 2.5% cap BEFORE as well as after retirement. 2/2
PS: I believe, however, that an increase in SAUL contributions to the current level for USS (i.e., 8% rather than 6% for members & 18% rather than 16% for employers) would be more than sufficient to pay for a restoration of USSโ€™s more generous CPI cap for pensions in payment. 1/
If that's right, then, ๐—ฎ๐—น๐—น ๐˜๐—ต๐—ถ๐—ป๐—ด๐˜€ ๐—ฐ๐—ผ๐—ป๐˜€๐—ถ๐—ฑ๐—ฒ๐—ฟ๐—ฒ๐—ฑ, ๐—ถ๐—ป๐—ฐ๐—น๐˜‚๐—ฑ๐—ถ๐—ป๐—ด ๐—ฐ๐—ผ๐—ป๐˜๐—ฟ๐—ถ๐—ฏ๐˜‚๐˜๐—ถ๐—ผ๐—ป๐˜€, ๐—ฆ๐—”๐—จ๐—Ÿโ€™๐˜€ ๐——๐—• ๐—ฟ๐—ฒ๐—บ๐—ฎ๐—ถ๐—ป๐˜€ ๐—ฎ๐˜ ๐—น๐—ฒ๐—ฎ๐˜€๐˜ ๐—ฎ๐˜€ ๐—ด๐—ผ๐—ผ๐—ฑ ๐—ฎ๐˜€ ๐—จ๐—ฆ๐—ฆโ€™๐˜€. 2/2
๐—ฆ๐—”๐—จ๐—Ÿ'๐˜€ ๐˜€๐˜‚๐—ฐ๐—ฐ๐—ฒ๐˜€๐˜€: ๐˜๐—ต๐—ฒ๐˜† ๐—ฎ๐—ฐ๐—ต๐—ถ๐—ฒ๐˜ƒ๐—ฒ๐—ฑ ๐—ต๐—ถ๐—ด๐—ต ๐—ฟ๐—ฒ๐˜๐˜‚๐—ฟ๐—ป๐˜€ ๐—ผ๐—ป ๐—ฎ ๐—ฝ๐—ผ๐—ฟ๐˜๐—ณ๐—ผ๐—น๐—ถ๐—ผ ๐˜๐—ต๐—ฎ๐˜ ๐˜„๐—ฎ๐˜€ ๐—ฎ๐—น๐—ฟ๐—ฒ๐—ฎ๐—ฑ๐˜† ๐Ÿฐ๐Ÿด% ๐—ฑ๐—ฒ-๐—ฟ๐—ถ๐˜€๐—ธ๐—ฒ๐—ฑ ๐—ถ๐—ป๐˜๐—ผ ๐—ฏ๐—ผ๐—ป๐—ฑ๐˜€ & ๐—ผ๐˜๐—ต๐—ฒ๐—ฟ ๐—น๐—ถ๐—ฎ๐—ฏ๐—ถ๐—น๐—ถ๐˜๐˜†-๐—ฑ๐—ฟ๐—ถ๐˜ƒ๐—ฒ๐—ป ๐—ถ๐—ป๐˜ƒ๐—ฒ๐˜€๐˜๐—บ๐—ฒ๐—ป๐˜. See below. 1/
SAUL's success provides a challenge to @ucu's view that the main problem w/ #USS's approach is their insistence on de-risking out of growth assets and into bonds. Here is SAUL's portfolio as of 31 March 2017: /2
๐Ÿ‘†LDI = liability-driven investment (gilts & cash). CDF = cashflow driven financing. Here corporate bonds & property are included, to try to match liabilities less expensively than via gilts. This image provides a more fine-grained representation of the portfolio. 3/
I believe that SAUL's current portfolio is already more de-risked than #USS's. It appears to be somewhere in between #USS's current portfolio and the one into which #USS plans to de-risk over the next 20 years. 4/
SAUL also plans to engage in *further* de-risking of their portfolio. But, unlike #USS, not in a rigid Test 1-driven fashion, even if this worsens poor scheme funding. Rather, only when funding level has improved. 5/
It appears that SAUL can afford to fund DB out of a de-risked portfolio w/o high contributions because the scheme is now in good financial health (i.e., surplus = assets greater than liabilities). 6/
Moreover, as I note in my blog, SAUL appears to be in such good health, relative to #USS, because they have invested their assets much more successfully than #USS has. 7/
In 2016-17, e.g., SAUL managed both to grow their assets at a much higher rate than USS did *and* to hedge interest rates and inflation in a manner that matched increases in the value of the liabilities much better than USS did. 8/
It would be very useful if JEP, perhaps w/ assistance of @UniversitiesUK & @ucu actuaries @kevinwesbroom @RedActuary & @Derek_Benstead, could shed light on how SAUL is able to provide a DB pension in much more cost-effective manner than #USS. 9/
In addition to facing the very same hostile DB regulatory environment as #USS, SAUL has, of course, operated within the same challenging investment climate as #USS. SAUL shows that it is possible to do things much better than #USS has managed in these circumstances. 10/
#USS: I hope, in the light of SAUL's example, that you will show a bit more humility, openness to self-scrutiny & willingness to entertain the possibility that you may have got things wrong & to open your accounts (e.g., your cash-flow figures) more fully to public scrutiny. 11/
I realise, #USS, that, in comparison with SAUL, you are a giant of an operation that bestrides the pensions world. But we all know how SAUL's son-in-law David fared in his encounter with Goliath. 12/12
A new blog post that incorporates tweets above about SAUL's approach to investment and de-risking:

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More from @MikeOtsuka

Oct 6, 2018
.@UCL_UCU has responded on Twitter to my linked blog post "Questions for advocates of No Detriment". Below I expose two problems with their response. 1/
In that blog, I ask: "Do you think union members would vote to authorise a strike for a No Detriment elimination of their 1.1% rise for three years rather than accepting the JEP-modelled solution?" 2/
.@UCL_UCU's rejoinder is that they are proposing a negotiation of a No Detriment elimination of any rise in contributions, not only of the modest 1.1% over the next three years, but also beyond that three year period. 3/
Read 18 tweets
Oct 3, 2018
.@UCL_UCU branch officers reveal that they misunderstood an important aspect of the JEP report when they pushed for their No Detriment motion today. In the embedded tweet, they write that JEP "don't refer accrual rate to JNC": 1/
In my subsequent exchange with @UCL_UCU that begins with the embedded tweet, I demonstrate that it is just as clear that they refer accrual rate to JNC as that they refer cost-sharing to JNC. 2/2
Read 5 tweets
Oct 3, 2018
A query for @UCL_UCU regarding their tweet below: 1/
If employers call for a cut to DB accrual from 1/75 to 1/80 in order to keep employer contributions down to 19.3% on a 65%/35% employer/member cost-sharing basis, would that also be consistent, in you view, with acceptance of the JEP recommendations in full? 2/2
Here I elaborate on my above query, in an email to @UCL_UCU President Sean @SeanAWallis or anyone else who would like to respond:
Read 5 tweets
Oct 3, 2018
It has been over a month since @Sam_Marsh101 submitted his Addendum to the JEP and #USS. If he's right, the current valuation contains a significant, hidden layer of prudence ABOVE AND BEYOND the following that JEP lists here: 1/
I say more about the significance of Sam's Addendum in this blog post, where I also explain why #USS and @GuyCoughlan owe us an answer to Sam's findings. 2/
I believe that, so far, this is the only response @Sam_Marsh101 has received: 3/
Read 11 tweets
Sep 29, 2018
๐Ÿšจ๐Ÿ’ฃ๐Ÿ˜ฑ.@Cambridge_Uni's response to a 2016 consultation re strength of the #USS covenant has recently been released via FOI. Cambridge disputes PWC's finding of a strong covenant over 30 as opposed to merely 20 years! The following statement in their response is a bombshell: 1/
"We would be concerned if the increase in visibility of a strong covenant was used to support a less prudent approach to the 2017 valuation than that adopted in 2014, either in terms of the assumptions adopted or the time horizon for de-risking." 2/
We are all aware that tPR's challenge, in their Sept 2017 letter, to the PWC/#USS assessment of the strength of the covenant, wreaked havoc on our DB pension and helped explain the shift to the more conservative November valuation. 3/
Read 25 tweets
Sep 26, 2018
JEP RECOMMENDATION #3: Smooth the cost of future service contributions over at least the next 6 years. As this chart indicates, this would reduce contributions by 1.5%. 1/
#USS's failure to smooth the cost of future service contributions constitutes a significant hidden layer of prudence. See this blog post: 2/
...and this blog post: 3/
Read 8 tweets

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