All posts by Collette Maxfield

Ollie Purkiss, Liberal Democrats, response to Brexit letter

Ollie Purkiss, Liberal Democrats candidate for Surrey South West.

 

Thank you for taking the time to contact me regarding the Higher Education sector and Brexit. I completely agree that a hard Brexit will be devastating for this sector and that we must fight to protect this socially and economically vital element of our country. The Conservative’s hard Brexit agenda is senselessly jeopardising our renowned and respected education sector and my party and I will continue to do everything in our power to stop them.

 

The EU student population contributed £3.7 billion to our economy and provided 34,000 jobs between 2012 and 2013. It is vital that the Conservative government ensure that this population can continue to study. To curtail the movement of EU students, or to actively cut their numbers would be irrational, illogical and short-sighted. Applications from the EU to Cambridge University for undergraduate courses have already dropped by 14%. We simply cannot afford to see this drop continue.

 

As well as the multitude of benefits that EU students bring to our country, UK students benefit hugely from being able to live and study in other EU member states. The Erasmus+ Programme is just one example of this. It offers opportunities for UK participants to study, work, volunteer, teach and train in Europe. Over 200,000 British students have already benefited from its opportunities. Over the next seven years Erasmus+ was set to allocate almost €1 billion to the UK and involve 250,000 participants. A hard Brexit, which would include the UK leaving the European Economic Area (EEA), would mean an end to our participation. It is senseless for us to withdraw from such a fantastic programme that has helped so many British people to develop, broaden their horizons and gain new experiences. The Tories are determined for us to cut off our nose to spite our face.

 

The EU is undeniably beneficial for our universities. It has directly invested in British universities, funding projects such as Swansea University’s new Innovation Centre. Under Framework Programme 7 (which ran from 2007 to 2013) the UK won around €8.8 billion in research grants, while paying in €5.4 billion. Through the EU’s Horizon 2020 programme the UK is set to receive £2 billion in the first two years. If the government, pull us out of the EU and the European Research Area (ERA) we will not be eligible for any future Horizon 2020 funding. Research and development, academic sharing and the exchange of ideas is essential for the future prosperity of the UK.

 

The Liberal Democrats are the only party that have consistently fought to stop the Tories pursuit of a hard Brexit. We have consistently called on the government to grant EU citizens living in the UK the right to remain; fought for the people to have the final say on the Brexit deal; and called for the Britain to maintain its membership of the Single Market. Voting for departure is not the same as voting for a destination. My colleagues and I will continue to push against a hard Brexit, advocating for the UK’s continued membership of the ERA and EEA.

Anne Milton, Conservative Party, RESPONSE TO BREXIT LETTER

Anne Milton, Conservative Party candidate for Guildford.

 

  1. This has been an issue of considerable discussion. The argument for including international students in net migration figures is that as they use local services they need to be counted in. However, they return home so are similarly counted out. I think there is much we need to do to change perceptions – international students are a positive contribution for us in Guildford but I know this message does not always come across.

 

2, 3, 4 and 5. The issues of home-rate tuition fees and visa-free access for EU students will be part of the Brexit negotiations. I know we all want to see EU nationals be able to stay and this is an issue I have raised and will continue to raise. There has been some discussion about alternative sources of funding other than raising tuition fees – Surrey is a good example of a University raising money through other sources.

 

  1. I would hope to see the continuation of Erasmus+ and other EU research funding. On this, Jo Johnson, UK Minister of State for Universities and Science, stated: “The referendum result does not affect students studying in the EU, beneficiaries of Erasmus+ or those considering applying in 2017. The UK’s future access to the Erasmus+ programme will be determined as a part of wider discussions with the EU.”

 

  1. All EU law will be passes over so employment rights will continue. We will be free to increase protections if we wish.

Howard Smith, Labour Party, response to Brexit Letter

Howard Smith, Labour Party candidate for Guildford.

Sorry, I have received this late, but many of your statements here are Labour policy and/or in our election manifesto.

So, in broad terms I am fully supportive of your aims, much of which is common sense and to be applauded .

While the Labour Party helped trigger A50 in parliament we are determined that any deal with the EU going forward should be on the very best terms including ensuring that the UK remains a welcoming place for overseas students.

The University of Surrey is a great asset to Guildford, one that should be treasured and if elected I would do everything possible to support your continuing success as much as I can.

Zoe Franklin, Liberal Democrats, response to Brexit Letter

Zoe Franklin, Liberal Democrats candidate for Guildford.

 

Many thanks for your email. As an alumni member of the university and Liberal Democrats that issues that you raise are particularly close to my heart and I’m happy to respond on the points raised in the letter you included.
  1. The Liberal Democrats are committed to removing students from the official migration statistics. The guaranteed continuation of home-rate tuition fees and visa-free access for EU students as part of a reciprocal agreement.
    I’m afraid that I’m not aware of Liberal Democrat policy on this issue and have contacted party HQ about but havent yet heard back. As I wanted to ensure that you received this in time for the 2nd I decided to write without this information.
  2. The guaranteed right to stay for EU staff and students who currently reside or study in the UK, with freedom of movement unrestricted for those who come to work or study from the EU.
    In our manifesto the Liberal Democrats have committed to pressing for the UK to unilaterally guarantee the rights of EU nationals in the UK, ending their ongoing uncertainty. We will call for the overhaul and simplification of the registration process and the requirements for EU nationals to obtain permanent residence and UK citizenship, as the current system is not fit for purpose. We will urge the government, and use our influence with Liberal leaders in European countries, to secure the same rights for UK citizens living in European Union countries.
  3. Extending the franchise to EU nationals residing in Britain to vote in National Elections.
    Im afraid that Im not aware of Liberal Democrat policy on this issue and have contacted party HQ about but havent yet heard back.
  4. The securing of alternative sources of university funding other than raised tuition fees.
    The EU is undeniably beneficial for our universities. It has directly invested in British universities, funding projects such as Swansea Universitys new Innovation Centre. Under Framework Programme 7 (which ran from 2007 to 2013) the UK won around 8.8 billion in research grants, while paying in 5.4 billion. Through the EUs Horizon 2020 programme the UK is set to receive £2 billion in the first two years. If the government, pull us out of the EU and the European Research Area (ERA) we will not be eligible for any future Horizon 2020 funding. Research and development, academic sharing and the exchange of ideas is essential for the future prosperity of the UK. I dont have any specific funding sources in mind the issue of funding streams is key and as MP I will work with Liberal Democrat colleagues to identify other options.
  5. The continued support of Erasmus+ and other EU research funding.
    Over the next seven years Erasmus+ was set to allocate almost 1 billion to the UK and involve 250,000 participants. A hard Brexit, which would include the UK leaving the European Economic Area (EEA), would mean an end to our participation. It is senseless for us to withdraw from such a fantastic programme that has helped so many British people to develop, broaden their horizons and gain new experiences. The Liberal Democrats will do everything we can to protect Erasmus+ and other EU-funded schemes which increase opportunities for young people.
  6. The continued protection of the employment rights currently provided by EU law.
    As a party we are committed to defending social rights and equalities. Many important protections such as the right to 52 weeks maternity leave and rights to annual leave are currently based on EU law, and any of these rights have been upheld at the European Court of Justice. We will fight to ensure that these entitlements are not undermined.
I hope that this is helpful and if you have any further queries please do get in touch.
Regards,
Zöe Franklin
Liberal Democrat Parliamentary Candidate for Guildford

Semi Essessi, Independent, Response to Brexit Letter

Semi Essessi, Independent Candidate  standing in Guildford:

I take most seriously your suggestions, especially since they broadly echo the local sentiment on these issues.

To directly address your points.

  1.     The removal of international students from official net migration figures.

I agree with this sentiment, although I would also be willing to support anything that helps to improve clarity here.

  1. The guaranteed continuation of home-rate tuition fees and visa-free access for EU students as part of a reciprocal agreement.

I am happy to support this, however, it must be balanced against the desires of the EU itself. Any solution here would require EU cooperation – it might be out of our hands.

  1. The guaranteed right to stay for EU staff and students who currently reside or study in the UK, with freedom of movement unrestricted for those who come to work or study from the EU.

I will extend my existing policy on this to cover students – the same arguments apply as for workers. There is very strong local support for this.

  1. Extending the franchise to EU nationals residing in Britain to vote in National Elections.

I strongly support this idea already, although I have failed to find time to mention it. There is something inherently wrong when people who live in a place have no say in how it is run. We already do this for council elections. The same arguments apply to parliament as they do to local council.

  1. The securing of alternative sources of university funding other than raised tuition fees.

I strongly believe that the only practical way to get rid of tuition fees, without jeopardising existing funding, is to address the budget deficit with a more modern, incremental approach. It is an optimisation problem and we have a huge mathematical toolbox for tackling such problems, which parliament and its advisers seem to be quite unaware of given their ideological and simplistic stances on this.

  1. The continued support of Erasmus+ and other EU research funding.

I find this difficult to support, and unlikely to come to fruition without motivation on the other side. It would very clearly be in our best interest – but its clearly not in the interest of the EU itself.

I am very willing to be convinced if there is a stronger case to be made for how this will benefit the EU, and I see no reason to oppose it.

  1. The continued protection of the employment rights currently provided by EU law.

I would sincerely hope in the wake of Brexit that our parliament would do this anyway, with some hope that they might go even further and strengthen the rights of UK workers even further.

Bear in mind that my positions is always open to change. I refuse to commit to policy absolutely up-front when we never know how the situation or prevailing opinion will be at the time it needs to be acted upon.

Brexit Meeting: Candidate Letter

Following our Brexit Meeting  on  Wednesday 10th May, we have sent the finalised Brexit letter below to the following General Election candidates requesting a response. We will publish responses here as they are received (please click on the candidates name if hyperlinked):

Candidates standing in Guildford:

Candidates standing in Surrey South West:

 

26th May 2017

 

Dear xxx,

We are writing to you as a prospective Member of Parliament for the Guildford constituency. In this letter, we would like to express a consensus regarding the impact of Brexit on higher education. We ask you to join us in supporting your local university, the University of Surrey, in protecting freedom of movement for both students and staff. We ask you to campaign for the right to remain for those working or studying in the higher education sector.

Currently, official net migration figures include international students. This inflates the apparent number of immigrants, thereby stoking the anti-migrant atmosphere that has emerged in the current political climate.

Our international students make substantial contributions to our University, such as the diversity they inject into the teaching and learning environment we have on campus.

The surveillance of international students to ensure visa-compliance has been delegated to University staff. In addition to its troublingly xenophobic implications, such immigration policing diverts valuable time and attention away from providing education. A candidate who is forthcoming in, not just refraining, but actively challenging xenophobic rhetoric would unquestionably win favour with the thousands of people we represent.

To protect the interests of those students who have come to the University from elsewhere in the EU, we advocate guaranteed, home-rate tuition fees and a reciprocal open approach, including visa-free access.

There have been reports of universities losing academic expertise in the wake of Brexit. While affected by consequences of the UK parliament, EU Nationals are not permitted the franchise. With neither the franchise nor the guaranteed right to stay, it is easy to understand why many feel uncomfortable working and studying in Britain.

International expertise at Surrey allows students to learn from the best in their fields, while exposure to a diverse body of students allows staff members and postgraduate teaching assistants to hone their communicative skills and introduces them to different perspectives on their taught subjects.

As well as ensuring that the University continues to benefit from international talent, it is imperative that the University remains able to secure research funding in the absence of the research programmes we enjoy because of existing EU sources. Such EU programmes as Erasmus+ provide financial support for our students and staff to study, train, work, or volunteer abroad.

A decline in EU teaching staff is especially concerning in light of the Teaching Excellence Framework (TEF) being introduced by the Government. This is because such a decline will almost certainly lead to further reliance upon casualised contracts. Given how far teaching workloads exceed any basic hourly metric, any increase in such insecure employment conditions would place even greater strain upon academic staff, to the detriment of teaching, research, and studying alike.

Lastly, both domestic and international workers at the University should retain the current levels of protection they enjoy under EU law, such as those relating to working time, parental leave, and health and safety.

We therefore ask you to reply and add your support to the following seven propositions:

  1.     The removal of international students from official net migration figures.
  2. The guaranteed continuation of home-rate tuition fees and visa-free access for EU students as part of a reciprocal agreement.
  3. The guaranteed right to stay for EU staff and students who currently reside or study in the UK, with freedom of movement unrestricted for those who come to work or study from the EU.
  4. Extending the franchise to EU nationals residing in Britain to vote in National Elections.
  5. The securing of alternative sources of university funding other than raised tuition fees.
  6. The continued support of Erasmus+ and other EU research funding.
  7. The continued protection of the employment rights currently provided by EU law.

Please be advised that your reply will be publicised alongside those from the other election candidates. We ask you to kindly respond by the 2nd June 2017 in order for us to circulate candidate responses.

 

Yours sincerely

 

Surrey UCU Committee

Surrey Unite Committee

Surrey Unison Committee

University of Surrey Post-Brexit Meeting

Dear Members,

We invite you to our next event: Post-Brexit Meeting, Wednesday 10th May 15:00, LTE.

Our UCU Branch Secretary, Dan Davison-Vecchione, will be chairing the meeting.

All staff and students at University of Surrey are warmly welcome to attend this event.

This event is designed to bring together the staff and students at University of Surrey who may have worries related to Brexit and its implications. There will be an opportunity for open discussion for all those attending, as well as an exploration into potential joint action to support the EU staff and students that are part of the University of Surrey community.

Speakers include:

Professor Vince Emery, University of Surrey Senior Vice-President

Douglas Chalmers, UCU Vice-President elect / UCU President of Scotland

Tai Ademola, University of Surrey SU Vice-President

Neil Jones, Unison Branch Chair, University of Surrey

 

 

 

Facilities Time and Surrey UCU

Dear Members,
Some of you may be aware of changes that have arisen in accordance with the recent Trade Union Act, in particular the reporting of Facilities Time.
Facility time is time off from an individual’s job, granted by the employer, to enable a workplace representative to carry out their trade union role.  It can also mean an employer allows a rep to carry out trade union duties and activities, instead of their substantive job, for a certain amount of time per week or month. As a rep you are entitled to reasonable paid time off and facilities to undertake union duties and attend Union training.
 
Currently, our committee does not take its full allowance of Facilities Time, officers choosing instead to volunteer their time. The committee works very hard to cover all areas that effect UCU members, including revising policies and procedures, attending JNCC meetings with the University Senior Management, as well as attending policy sub-groups. The committee also advises many members simultaneously as well as representing members at meetings.
If you were able to volunteer as a committee member in the future, please do remember that Facilities Time would be available to you, and we would be happy for you to use it. 
Please do not hesitate to contact us if you have any questions.
Kind regards
Colette            
Branch Administrator

cmaxfield@ucu.org.uk
 

Open letter from Surrey UCU Pensions Rep to Professor G Q Max Lu re USS

170307 Professor G Q Max Lu UCU Pensions Representative’s response to USS consultation document

UCU Pensions Representative’s response to USS consultation document

Andrew Mason UCU Pensions Representative
Surrey University
Professor G Q Max Lu
President and Vice-Chancellor

Dear Professor Lu,

I am writing to you as the Pensions Representative for UCU at Surrey University. I know that you were not in the U.K. at the time of the 2014 USS pensions’ revaluation and subsequent downgrading of employee benefits when the scheme moved from a long-established Final Salary Defined Benefit Scheme to the current hybrid scheme which comprises the old final salary scheme, a CRB defined benefit scheme and a defined contribution scheme. In addition to the complexities of having three pension schemes where there once was one there was universal agreement amongst employees who are members of the USS scheme that our benefits and our conditions of employment had been downgraded.

Part of the problem with the last valuation was the methodology, the so-called ‘gilts-plus’ methodology which suggested that the scheme was in a substantial deficit and required extra contributions from the universities and members. This methodology was criticised in many quarters and may not be the most appropriate method of valuing the scheme, particularly at a time of unprecedentedly low interest rates in the wake of massive quantitative easing. It also may not be the most appropriate scheme for a fund which has strong cash flow and a substantial exposure to other asset classes, including the very large exposure to equities. As a former senior investment manager who worked for USS I was astonished at the outcome of the valuation and still find it difficult to believe.
I would however like to reflect the views of the Surrey Branch of UCU, fellow pension representatives at other UK universities and those of UCU and their actuary First Actuarial as an input to the upcoming employer consultation “USS Consultation Document on Methodology and Inputs for the 2017 Valuation” that closes on the 17th of March.

As employees of the university and members of the scheme we are deeply concerned that this flawed methodology is being employed again by the USS Actuaries and also that there may be an underlying shift towards defined contributions even though the current defined contributions component of the scheme has not bedded in. Nor does it provide sufficient information on the underlying investments for scheme members to make an informed choice. The USS pension scheme has been seen as an attractive part of a University remuneration package where salaries have been stagnant and administrative burdens have increased. We all fear another demoralising and unnecessary drive to reduce pension benefits which in the longer term may prove to be detrimental to the recruitment and retention of university staff.

To the best of my understanding there is a wish by the employers association (UUK) to ensure that over the time horizon of the Employers Covenant the contingent reliance on the employers does not increase in inflation adjusted terms.

This reliance on the employers covenant is a residual figure based on an estimate of future liabilities and future assets (and other factors such as demographics of the workforce which are not relevant
UCU Pensions Representative’s response to USS consultation document to this discussion). The size of this shortfall or residual is totally driven by the underlying assumptions primarily the discount rate which is used to discount assets and liabilities and the assumed rate of return. When interest rates (discount rates) are so low, a very small change in the assumed discount rate or rate of return will have   large effect on the final outcome. There also may be a move to derisking – a shift from equities (risk & return bearing assets) into bonds (assumed to be a lower risk lower return asset). The timing of such derisking could have a significant impact on the fund as we have experienced an unprecedented period of very low interest rates (very high bond prices) and it would be disingenuous to assume that a major correction in this asset class may not occur over the timescale of the employers’ covenant. Thus a prudent strategy, which is not necessary for a cash flow positive fund, may hold significant implementation risk.

I apologise for the technical nature of the rest of the letter which is based on discussions of the proposals which have taken place at other forums but which outline some key issues in the current
debate. I have attached First Actuarial’s (UCU’s actuary) document released in Dec 2016 given which argues that given how expensive it now is to generate income from gilts that a significantly greater
weighting of a self-sufficiency portfolio toward equity than gilts plus 0.5% would be a more efficient means of delivering self-sufficiency. We also believe that USS’s best estimate of returns on equity
must be assuming very modest real dividend growth, much lower it is than First Actuarial’s best estimate, which assumes 1% real growth over RPI. I would also like to draw your attention to the updated cash flow projection chart from First Actuarial, (PDF attached) which suggests that, as a result of the recent cuts to employees DB pensions, the scheme will remain in positive cash flow for the next 60 years. For reasons which are mentioned below in numbered excerpts from First Actuarial’s submission to the 2014 valuation, such positive cash flow greatly diminishes the risk of remaining invested in return-seeking assets such as equity.
I have also attached Aon Hewitt’s UUK’s submission for the 2014 valuation, as a means of avoiding needlessly layering prudence upon prudence. Such flexibility still involves a commitment to a substantial level of prudence which is inherent in USS’s Test 1 which relates to the technical provisions the reliance on the employers’ covenant.

The following points have been made by UCU, their actuaries and Pension representatives from various universities:
i. While the net cash flow is positive, there is no need to sell any assets and therefore no disinvestment risk to the USS. Low market prices are beneficial during this {…} period of positive net cash flow [because assets are being purchased more cheaply], so a measure of risk which suggests a market fall is a problem would be giving a wrong message.
ii. While there is no requirement to sell assets, volatility from market value fluctuations is not a concern for the USS: the main concern is the volatility in asset income. Measures of risk and funding level which are market value sensitive, as opposed to asset income sensitive, are likely to be inappropriate in this context and should be given little attention.
i. In the >99% likely scenario of USS continuing as an open scheme sponsored by employers
with a robust covenant, the issue of very high relevance is the rate of growth of asset
income. Income uncertainty, not market value volatility, is the key issue for the scheme.
UCU Pensions Representative’s response to USS consultation document

As we can see, moreover, from graphs such as the following, dividend income from equity is much more predictable and less volatile than the asset price:
So long, therefore, as the scheme is valued in a manner that is sensitive to these more modest fluctuations in investment income rather than the greater volatility of asset prices, it seems unlikely that an in extremis scenario would emerge in which a funding shortfall becomes so great that employer contributions would need to rise to the level of 25%. First Actuarial has proposed an Internal Rate of Return (IRR) method of valuing the scheme that tracks changes in income rather than prices. See p. 7 of the attached document prepared by First Actuarial for some modelling of this approach, as applied to USS.

During communications with other Pensions Representatives it seems that not all employers/Universities accept the USS view of the world and the potential impact for employers and employees contributions. We urge you to get further clarification and supporting evidence from USS with regard to the level of risk and some explanation for their adherence to a possibly flawed valuation methodology. We feel that the case outlined above, maintaining contributions and benefits at least until 2020, provides a sensible and prudent means of sustaining our current defined benefit scheme and should not be rejected on the grounds that it may, under extreme circumstances, expose employers to further risk.

I look forward to hearing from you

Yours Faithfully
Andrew Mason

Ps This is an open letter which will be distributed to all members of the UCU Surrey Branch and I trust you will not object to your response being distributed to members
Attachments:
Aon Hewitt UUK 2 Dec 2014 response to AV consultation
uss_firstactuarial_2017valuationinput_reportforucu
First Actuarial’s USS 2017.03.01 cash flows
UCU Pensions Representative’s response to USS consultation document

Open letter from Surrey UCU Pensions Rep to Professor G Q Max Lu re USS

170307 Professor G Q Max Lu UCU Pensions Representative’s response to USS consultation document

UCU Pensions Representative’s response to USS consultation document

Andrew Mason UCU Pensions Representative
Surrey University
Professor G Q Max Lu
President and Vice-Chancellor

Dear Professor Lu,

I am writing to you as the Pensions Representative for UCU at Surrey University. I know that you were not in the U.K. at the time of the 2014 USS pensions’ revaluation and subsequent downgrading of employee benefits when the scheme moved from a long-established Final Salary Defined Benefit Scheme to the current hybrid scheme which comprises the old final salary scheme, a CRB defined benefit scheme and a defined contribution scheme. In addition to the complexities of having three pension schemes where there once was one there was universal agreement amongst employees who are members of the USS scheme that our benefits and our conditions of employment had been downgraded.

Part of the problem with the last valuation was the methodology, the so-called ‘gilts-plus’ methodology which suggested that the scheme was in a substantial deficit and required extra contributions from the universities and members. This methodology was criticised in many quarters and may not be the most appropriate method of valuing the scheme, particularly at a time of unprecedentedly low interest rates in the wake of massive quantitative easing. It also may not be the most appropriate scheme for a fund which has strong cash flow and a substantial exposure to other asset classes, including the very large exposure to equities. As a former senior investment manager who worked for USS I was astonished at the outcome of the valuation and still find it difficult to believe.
I would however like to reflect the views of the Surrey Branch of UCU, fellow pension representatives at other UK universities and those of UCU and their actuary First Actuarial as an input to the upcoming employer consultation “USS Consultation Document on Methodology and Inputs for the 2017 Valuation” that closes on the 17th of March.

As employees of the university and members of the scheme we are deeply concerned that this flawed methodology is being employed again by the USS Actuaries and also that there may be an underlying shift towards defined contributions even though the current defined contributions component of the scheme has not bedded in. Nor does it provide sufficient information on the underlying investments for scheme members to make an informed choice. The USS pension scheme has been seen as an attractive part of a University remuneration package where salaries have been stagnant and administrative burdens have increased. We all fear another demoralising and unnecessary drive to reduce pension benefits which in the longer term may prove to be detrimental to the recruitment and retention of university staff.

To the best of my understanding there is a wish by the employers association (UUK) to ensure that over the time horizon of the Employers Covenant the contingent reliance on the employers does not increase in inflation adjusted terms.

This reliance on the employers covenant is a residual figure based on an estimate of future liabilities and future assets (and other factors such as demographics of the workforce which are not relevant
UCU Pensions Representative’s response to USS consultation document to this discussion). The size of this shortfall or residual is totally driven by the underlying assumptions primarily the discount rate which is used to discount assets and liabilities and the assumed rate of return. When interest rates (discount rates) are so low, a very small change in the assumed discount rate or rate of return will have   large effect on the final outcome. There also may be a move to derisking – a shift from equities (risk & return bearing assets) into bonds (assumed to be a lower risk lower return asset). The timing of such derisking could have a significant impact on the fund as we have experienced an unprecedented period of very low interest rates (very high bond prices) and it would be disingenuous to assume that a major correction in this asset class may not occur over the timescale of the employers’ covenant. Thus a prudent strategy, which is not necessary for a cash flow positive fund, may hold significant implementation risk.

I apologise for the technical nature of the rest of the letter which is based on discussions of the proposals which have taken place at other forums but which outline some key issues in the current
debate. I have attached First Actuarial’s (UCU’s actuary) document released in Dec 2016 given which argues that given how expensive it now is to generate income from gilts that a significantly greater
weighting of a self-sufficiency portfolio toward equity than gilts plus 0.5% would be a more efficient means of delivering self-sufficiency. We also believe that USS’s best estimate of returns on equity
must be assuming very modest real dividend growth, much lower it is than First Actuarial’s best estimate, which assumes 1% real growth over RPI. I would also like to draw your attention to the updated cash flow projection chart from First Actuarial, (PDF attached) which suggests that, as a result of the recent cuts to employees DB pensions, the scheme will remain in positive cash flow for the next 60 years. For reasons which are mentioned below in numbered excerpts from First Actuarial’s submission to the 2014 valuation, such positive cash flow greatly diminishes the risk of remaining invested in return-seeking assets such as equity.
I have also attached Aon Hewitt’s UUK’s submission for the 2014 valuation, as a means of avoiding needlessly layering prudence upon prudence. Such flexibility still involves a commitment to a substantial level of prudence which is inherent in USS’s Test 1 which relates to the technical provisions the reliance on the employers’ covenant.

The following points have been made by UCU, their actuaries and Pension representatives from various universities:
i. While the net cash flow is positive, there is no need to sell any assets and therefore no disinvestment risk to the USS. Low market prices are beneficial during this {…} period of positive net cash flow [because assets are being purchased more cheaply], so a measure of risk which suggests a market fall is a problem would be giving a wrong message.
ii. While there is no requirement to sell assets, volatility from market value fluctuations is not a concern for the USS: the main concern is the volatility in asset income. Measures of risk and funding level which are market value sensitive, as opposed to asset income sensitive, are likely to be inappropriate in this context and should be given little attention.
i. In the >99% likely scenario of USS continuing as an open scheme sponsored by employers
with a robust covenant, the issue of very high relevance is the rate of growth of asset
income. Income uncertainty, not market value volatility, is the key issue for the scheme.
UCU Pensions Representative’s response to USS consultation document

As we can see, moreover, from graphs such as the following, dividend income from equity is much more predictable and less volatile than the asset price:
So long, therefore, as the scheme is valued in a manner that is sensitive to these more modest fluctuations in investment income rather than the greater volatility of asset prices, it seems unlikely that an in extremis scenario would emerge in which a funding shortfall becomes so great that employer contributions would need to rise to the level of 25%. First Actuarial has proposed an Internal Rate of Return (IRR) method of valuing the scheme that tracks changes in income rather than prices. See p. 7 of the attached document prepared by First Actuarial for some modelling of this approach, as applied to USS.

During communications with other Pensions Representatives it seems that not all employers/Universities accept the USS view of the world and the potential impact for employers and employees contributions. We urge you to get further clarification and supporting evidence from USS with regard to the level of risk and some explanation for their adherence to a possibly flawed valuation methodology. We feel that the case outlined above, maintaining contributions and benefits at least until 2020, provides a sensible and prudent means of sustaining our current defined benefit scheme and should not be rejected on the grounds that it may, under extreme circumstances, expose employers to further risk.

I look forward to hearing from you

Yours Faithfully
Andrew Mason

Ps This is an open letter which will be distributed to all members of the UCU Surrey Branch and I trust you will not object to your response being distributed to members
Attachments:
Aon Hewitt UUK 2 Dec 2014 response to AV consultation
uss_firstactuarial_2017valuationinput_reportforucu
First Actuarial’s USS 2017.03.01 cash flows
UCU Pensions Representative’s response to USS consultation document