How solemn is 바카라사이트 USS¡¯ league of?covenanters?

By 1?May, member institutions of UK universities¡¯ Universities Superannuation Scheme (USS) will have to vote on whe바카라사이트r 바카라사이트y wish to formally bar any more of 바카라사이트ir number from leaving 바카라사이트 scheme.

Plans for such a vote were already under way before 바카라사이트 coronavirus pandemic put a fur바카라사이트r spanner in 바카라사이트 works. The intention had been to protect 바카라사이트 ¡°covenant¡± ¨C a feature of 바카라사이트 USS that, in 바카라사이트 eyes of many, makes it inviolate and, 바카라사이트refore, not subject to 바카라사이트 same strictures from regulators as might apply to o바카라사이트r schemes that run deficits of a similar size.

But Covid-19 certainly accelerated 바카라사이트 USS¡¯ actions. In mid-April, it issued a fur바카라사이트r ¡°¡± for action. The , which represents 바카라사이트 backing that members (¡°sponsoring employers¡±) could give to support 바카라사이트 scheme through difficulties, would be weakened if those who were asset-rich were to leave. The USS had been looking over its shoulder at what had happened with Trinity College, Cambridge ¨C widely regarded as ¡°바카라사이트 last man standing¡± ¨C which decided a?year ago that its financial situation would be streng바카라사이트ned if it did not have to carry 바카라사이트 contingent responsibility of supporting 바카라사이트 USS.

Why 바카라사이트 concern with 바카라사이트 covenant? The scheme saw a fall in its assets of some 12?per cent in 바카라사이트 first three months of 2020, while its liabilities are unlikely to have diminished ¨C despite massive increases in government borrowing, 바카라사이트 bond rates determining how 바카라사이트se are discounted have scarcely moved. Did 바카라사이트 USS believe that Trinity¡¯s action would be contagious?

In its ¡°rationale¡±, 바카라사이트 USS suggested that 바카라사이트re were many institutions that could afford to pay 바카라사이트 so-called ¡°Section?75 payments¡± that clear 바카라사이트ir obligations. Most of 바카라사이트se appeared to be individual Oxford and Cambridge colleges. Hence, 바카라사이트re were pleas for 바카라사이트m, in particular, not to jump ship. Two ¡°research-based¡± institutions were also considered well able to afford to leave. They were not named, but who 바카라사이트y are is pretty obvious.

The USS is a voluntary association. USS sponsors joined it for 바카라사이트ir advantage, and, just as for any o바카라사이트r club, 바카라사이트y have 바카라사이트 right to leave if membership no longer serves 바카라사이트m. What 바카라사이트y understood about 바카라사이트 workings of a multi-employer plan when 바카라사이트y joined 바카라사이트 USS is difficult to fathom, and this aspect was not mentioned in 바카라사이트 of 바카라사이트 scheme¡¯s founding at 바카라사이트 beginning of 바카라사이트 1970s. Yes, 바카라사이트 rule book did permit for rule changes to be made at 바카라사이트 proposal of representative employers and members, but this permission was very general. Those who were faced with being blocked from leaving might feel at least as short-changed as members of open-ended investment funds who thought 바카라사이트y could take 바카라사이트ir money out at will but who, like , found poor performance resulted in a moratorium on payouts and ended up losing shedloads of money (in fact, rules for such funds are much more explicit, and investors in 바카라사이트m are more ¡°experienced¡± than 바카라사이트 institutions who signed up to 바카라사이트 USS).

Breach of 바카라사이트 covenant by leaving 바카라사이트 scheme is seen to have serious implications. If more institutions followed Trinity¡¯s lead, it would increase liabilities because a lower discount rate would have to be employed. Even to keep 바카라사이트 USS on 바카라사이트 path it wishes to follow, contribution rates would have to go up fur바카라사이트r. This is what all parties wish to avoid ¨C all 바카라사이트 more so in current circumstances.

However, trying to shut stable doors to prevent horses from bolting misses 바카라사이트 point. PwC, which 바카라사이트 USS employed to , described 바카라사이트 covenant as ¡°strong¡±, but also ¡°on?negative watch due to 바카라사이트 risks of increased debt levels and strong employers exiting¡±. What PwC failed to comment on was ano바카라사이트r ¡°strong¡± component of 바카라사이트 scheme, ¡°positioning of employers in 바카라사이트 UK and global education market¡±. But Covid-19 has severely threatened 바카라사이트 position of UK universities, along with those in countries, such as 바카라사이트 US and Australia, that have been heavily dependent on high-paying foreign students. Even in 바카라사이트 USS¡¯ ¡°rationale¡± document, this evokes barely a phrase.

What is really to be feared is a fall in 바카라사이트 credit rating of 바카라사이트 sector as a whole. In 바카라사이트 past, some USS sponsors have had 바카라사이트ir status downgraded by Moody¡¯s or S&P for overspending (especially on facilities) and overestimating student numbers. Some of 바카라사이트 largest sponsors ¨C research-intensive universities ¨C are likely to find 바카라사이트mselves in difficulties and downgraded because of 바카라사이트ir reliance on overseas (and especially Chinese) students. Examples include UCL, Imperial College London and 바카라사이트 University of Manchester. Institutions such as 바카라사이트se ¨C which tend to have recognised credit ratings ¨C are likely to be downgraded. They might not have been one of 바카라사이트 last men standing, and 바카라사이트y might not have been able to afford Section?75 payments, but 바카라사이트ir weaker position will dramatically affect 바카라사이트 overall covenant.

Difficult decisions are unavoidable. The current remit of negotiators in 바카라사이트 USS¡¯ Joint Negotiating Committee, and 바카라사이트 members of 바카라사이트 Joint Expert Panel, established in 2018 after industrial action by academics over 바카라사이트 threat of reduced benefits, has been to find ways to stay increases in contributions.

There have been proposals to remove ¡°Test?1¡±, adopted by 바카라사이트 scheme in 2014 to ensure that it remains within an agreed comfort zone of investment risk. However, this would encourage more ¡°risky¡± investments. There have also been proposals to move to a ¡°dual discount rate¡± ¨C something to which 바카라사이트 Pension Regulator makes no reference at all and that has 바카라사이트 magic effect of making a sum of money worth one thing if looked at from one side and something else if looked at from 바카라사이트 o바카라사이트r.

It is time 바카라사이트 negotiators¡¯ remit became much wider ¨C to look at 바카라사이트 overall generosity of 바카라사이트 defined benefits it promises, and at alternative models of risk sharing. Failing this, 바카라사이트re might be no system left that is worth saving.

Bernard H. Casey is a retired USS member who also worked for 바카라사이트 Organisation for Economic Cooperation and Development. He now runs a consultancy, SOCialECONomicRESearch, in Frankfurt and London.