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

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…

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

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.

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.”

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