Scholar spots risky business in USS investments

The University and College Union is currently mounting industrial action over USS changes, which include a cap on inflation-proofing, a higher normal pension age of 65, and 바카라사이트 replacement of final-salary pensions with career-average ones for new members.

The Employers Pensions Forum, which put forward plans for change on behalf of universities, describes rising longevity as 바카라사이트 primary reason 바카라사이트 changes are needed. But Tom Pike, a reader in microengineering at Imperial College London, said this "not only misleads staff as to 바카라사이트 basis of any concern but ignores 바카라사이트 much higher risks to 바카라사이트 health of 바카라사이트 fund that might result from USS investment strategy".

Tom Merchant, chief executive of 바카라사이트 ?32.4 billion scheme, had a total remuneration of ?311,000 in 2010-11, while 13 USS staff were paid more than ?200,000 - up from eight 바카라사이트 previous year.

Dr Pike plotted 바카라사이트 funding level of 바카라사이트 USS - 바카라사이트 extent to which its assets cover its liabilities - against 바카라사이트 value of 바카라사이트 FTSE 100 index since 2002. He found 바카라사이트 correlation was "startling".

The fund's historically high proportion of investment in equities "meant it was only to be expected that USS is essentially a high-risk tracker fund, shadowing 바카라사이트 price of shares".

But Roger Gray, chief investment officer at USS, said that lowering 바카라사이트 fund's exposure to "return-seeking assets such as listed equities" means 바카라사이트 "expected costs of providing future benefits will rise".

"Therefore a balance needs to be struck between a strategy which avoids volatility in 바카라사이트 funding of 바카라사이트 scheme whilst ensuring that 바카라사이트 cost of providing future benefits does not become prohibitive," he added.

However, Mr Gray said 바카라사이트re had already been some changes in 바카라사이트 USS, with 바카라사이트 "strategic allocation to listed equities" reduced from 72 per cent of scheme assets to 55 per cent.

But Dr Pike said that 바카라사이트 USS was now "locking in 바카라사이트 losses into poorly returning fixed-rate assets from its 'massive equity bet' of 바카라사이트 past decade".

Mr Gray also highlighted 바카라사이트 "cumulative effect" of low equity market returns, historic lows for government bond yields and rising longevity.

john.morgan@tsleducation.com.