First impressions on St Andrews’ submission to the USS survey: aarrgggh

Alexander Douglas
4 min readMar 10, 2018


Another pensions dispute blog, I’m afraid.

I’ve just been sent St Andrews’ submission to the USS survey. I’ve been told that it’s not to be published, so I’ll have to be somewhat selective in what I quote. But what I want to say is pretty much summarised by: aarrgggh.

The first thing I notice is that St Andrews’ submission repeatedly complains of the ‘complexity’ of USS’s 2017 valuation report. For instance:

The valuation assumptions as presented are extremely complex — which has attracted criticism from the Pensions Regulator — but this complexity is not adding insight. A simple presentation of options would be beneficial, modelling the consequences of a range of potential economic scenarios…

If you click the link to the USS report, you’ll see that it is indeed complex. It’s 58 pages long. On the other hand, USS is one of the largest private pension funds in the UK. It covers about £60bn worth of assets, in a very diverse portfolio. We’ve also lived through some pretty unusual economic times. Complexity is, you might think, to be expected. Decide for yourself whether it ‘adds insight’.

To complain of the complexity of the report seems typical of the arrogance of upper management in ‘prestigious’ institutions. Did they feel put upon having to read so much? We can judge how valuable they think their time is by looking at the salaries they pay themselves.

While complaining of the report’s complexity, the submission gives every sign of not understanding it. Early on it says this:

It is of real concern that the proposed level of risk is significantly greater than that considered acceptable for the 2014 evaluation. In effect, the Trustee is betting that the market’s view of long-term risk-free returns is too low. Having got this so badly wrong in the 2014 valuation, it is difficult to understand the justification for such an optimistic view

And later: “Nowhere does the documentation clearly acknowledge what went so badly wrong in 2014”.

Well, perhaps I can help. What ‘went so badly wrong’ in 2014 was an overestimation of the long-term return on gilts. To quote USS’s report (p.9):

In 2014, the trustee expected to reduce the scheme’s absolute level of investment risk exposure by gradually moving to a lower risk portfolio over 20 years so that investment volatility remains proportionate to the pensionable payroll. Between valuations, long-dated index-linked gilt yields have fallen from already historically low levels by a further 1.5%, making them more expensive than in 2014. As a result, the trustee could not de-risk the portfolio under the funding triggers agreed at the 2014 valuation.

But if gilt yields were lower than expected, why does this justify the proposal to shift the portfolio further and faster into gilts? St Andrews’ submission, after effectively admitting to not understanding the report, goes on to say things like: “The technical assumptions give us little grounds for increased confidence in the governance structures of USS — about which the University of St Andrews has previously expressed its concern”. “[W]e are not convinced either by the value or the credibility of the current approach”. The old killer combo of not understanding and yet knowing better. [UPDATE: Mike Otsuka has pointed out that St Andrews senior management is also here condemning USS for not predicting Brexit in 2014 — I don’t remember the University of St Andrews predicting it at that time either.]

If the modelling can’t be trusted, the submission reasons, we’d better shift into precisely the assets that turned out to be higher-cost and lower-return than the modelling predicted.

The forecast said it wouldn’t rain yesterday, and yet it did. The forecast can’t be trusted. So today I’m definitely not bringing my umbrella.

In case the analogy isn’t clear, remember that risk is always two-sided. If you sell equities to buy gilts when the price of the former is at a low point and the price of the latter is at a high point, then you’ve just paid a massive opportunity cost. Since this cost was higher than the 2014 valuation suggested, St Andrews management believes USS had better make sure to pay a lot more of it.

This makes no sense on the face of it. But do you think this might be the real motivation: “we believe that a move to DC is the only option now available, although we recognise this will be a deeply controversial and unpopular decision”?

This is the hidden logic of all ‘There Is No Alternative’ reasoning. It goes like this:

TINA: “We just can’t afford to pay for X!”

You: “Yes you can: X is pretty cheap!”

TINA: “Oh yeah?” *Proposes to pointlessly overpay for X* “Told you it wasn’t affordable!”

You: “Aaargh.”

In conclusion: aargggh.

Aarggghh, aaaarggggh, aaaaaarrggggghhhh.



Alexander Douglas

Lecturer in Philosophy, University of St. Andrews — personal website: