There is no USS deficit – and here’s my working – Sean Wallis

Published as Mathematical operations with the Normal distribution, corp.ling.stats

In my Made in Westminster post I summarised a financial and political analysis of the USS pension deficit. I also run a blog for discussing statistics in corpus linguistics, and it is there that I have published my working (unlike UUK).

Case study: The declared ‘deficit’ in the USS pension scheme

At the time of writing nearly two hundred thousand university staff in the UK are active members of a pension scheme called USS. This scheme draws in income from these members and pays out to pensioners. Every three years the pension is valued, which is not a simple process. The valuation consists of two aspects, both uncertain:

  • to value the liabilities of the pension fund, which means the obligations to current pensioners and future pensioners (current active members), and
  • to estimate the future asset value of the pension fund when the scheme is obliged to pay out to pensioners.

What happened in 2017 (and happened in the last two valuations) is that the pension fund has declared itself to be in deficit, meaning that the liabilities are greater than the assets. However, in all cases this ‘deficit’ is a projection forwards in time. We do not know how long people will actually live, so we don’t know how much it will cost to pay them a pension. And we don’t know what the future values of assets held by the pension fund will be.

The September valuation

In September 2017, the USS pension fund published a table which included two figures using the method of accounting they employed at the time to value the scheme.

  • They said the best estimate of the outcome was a surplus of £8.3 billion.
  • But they said that the deficit allowing for uncertainty (‘prudence’) was –£5.1 billion.

Now, if a pension fund is in deficit, it matters a great deal! Someone has to pay to address the deficit. Either the rules of the pension fund must change (so cutting the liabilities) or the assets must be increased (so the employers and/or employees, who pay into the pension fund must pay more). The dispute about the deficit is now engulfing UK universities with strikes by many tens of thousands of staff, lectures cancelled, etc. But is there really a ‘deficit’, and if so, what does this tell us?

The first additional bit of information we need to know is how the ‘uncertainty’ is generated. In February 2018 I got a useful bit of information. The ‘deficit’ is the lower bound on a 33% confidence interval. This is an interval that divides the distribution into thirds by area. One third is below the lower bound, one third above the upper bound, and one third is in the middle. This gives us a picture that looks something like this:

Sketch of the probability distribution of the difference between USS assets and liabilities projected on September valuation assumptions (gradual ‘de-risking’).

Of course, experimental statisticians will never use such an error-prone confidence interval. We wouldn’t touch anything below 95%! To make things a bit more confusing, the actuaries talk about this having a ‘67% level of prudence’ meaning that two-thirds of the distribution is above the lower bound. All of this is fine, but it means we must proceed with care to decode the language and avoid making mistakes.

In any case, the distribution of this interval is approximately Normal. The detailed graphs I have seen of USS’s projections are a bit more shaky (which makes them appear a bit more ‘sciency’), but let’s face it, these are projections with a great deal of uncertainty. It is reasonable to employ a Normal approximation and use a ‘Wald’ interval in this case because the interval is pretty much unbounded – the outcome variable could eventually fall over a large range. (Note that we recommend Wilson intervals on probability ranges precisely because probability p is bounded by 0 and 1.)

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‘No deficit’ letter to Guardian

University pension ‘deficit’ should be addressed by Government guarantee

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The University strikes over the future of the USS pension scheme reach a pivotal point this week. The employers’ federation, Universities UK, is deeply divided, with some, like Imperial College, calling for an “evidence-based” valuation of the scheme, while others blame the Pension Regulator for the current valuation method.

The evidence shows there is no deficit, and there is no need for either party to pay into the scheme to “solve” a non-existent problem. But there seems to be a political blockage which must be promptly addressed.

The trigger for the current dispute is a valuation of the pension fund related to the assumption – common in pension valuations – that the scheme should be evaluated by a method related to the very particular circumstances of employer bankruptcy.

It is further assumed that, in such circumstances, the pension fund would divest from the stock market and buy government bonds and gilts. Only by employing both assumptions does the valuation obtain a possible negative outcome.

However, the first assumption is a political impossibility, or it should be for any sitting government. The “employer” in the case of USS is in fact 350 employers, including some 68 large pre-92 universities. Since USS’s inception, no member university has ever gone bankrupt. If the current government is contemplating the closure of its pre-92 university sector, we think they have an obligation to tell the students, their parents and indeed the whole country! Continue reading

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Oxford’s and Cambridge’s role in the demise of USS – Mike Otsuka

This article is resyndicated from

To be more precise: what follows is an account of the role of these two universities, and their constituent colleges, in the demise of USS as a multi-employer scheme that promises a decent, defined benefit (DB) pension to its members. In the past, this promise has been generous and affordable, owing to the risk pooling across 68 well-established UK universities that the last-man-standing mutuality of the scheme makes possible. It is clear, however, that Oxford and Cambridge now want out of such a DB scheme. The clarity of this desire is revealed in the following figure:

It is striking that 73% of “Oxbridge” institutions — which must include constituent colleges as well as the universities — oppose the mutuality of USS’s last-man-standing arrangement, as compared with only 14% of all other USS universities (designated ‘Pre-92’).

They want out on grounds that last man standing exposes them to too much risk arising from “weaker” universities. In their submission to the September consultation, Oxford writes that “the level of risk being proposed is not appropriate for all institutions and allowing weaker institutions to rely on the strength of other employers in a manner which makes their pension benefits appear affordable must be addressed”. They conclude that a “DC-only structure…would help reduce the University’s concern regarding underwriting the risk of future benefit accrual for other institutions”.

In their submission to the September consultation, Cambridge objects that:

The University (and the other financially stronger institutions) continues to lend its balance sheet to the sector, which contains the cost of pension provision for all employers. In a competitive market for research and student places the University would be concerned if this appeared to be having an adverse effect on the University’s competitiveness (by allowing competitor universities access to investment financing or reducing their PPF costs in a way that would not be possible on a stand-alone basis).

Although this may strike some as an uncollegial, dog-eat-dog attitude towards their academic peers, Cambridge assures us that this is in the service of the greater good of society: “the University wishes to protect the long term health of the University as a major asset to the UK economy”.

Continue reading on

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Made in Westminster – Sean Wallis

Made in Westminster:

The source of the USS ‘crisis’ – and the solution

In our letter to the Guardian we wrote that

[The USS ‘crisis’] is the result of the misrepresentation of the finances of the USS, and the desire of a new breed of university managements to cut their pension liabilities and thereby ease the financing of new buildings and campuses.

Successive Pension Acts have encouraged managers of private sector schemes to exaggerate the risks of default. Combined with Quantitative Easing, this has led to a headlong abandonment of Final Salary Defined Benefit to “Defined Contribution” schemes, where employees rather than employers bear investment risk.

Higher Education today is shaped by frantic competition for students and huge building projects. Universities can recruit unlimited UK undergraduates paying an annual £9,000 plus, backed by taxpayer loans. The Higher Education and Research Act 2017 even allows universities to go bankrupt.

Much of this argument will be familiar to colleagues. The debate about the University Superannuation Scheme (USS) deficit has been an active subject of discussion on campuses since last summer when the press first announced that the pension scheme was at risk. Initial press claims were of a deficit of £17.5bn, while at exactly the same time USS themselves reassured pensioners that the scheme was in surplus.

But it is worth considering the source of this deficit in more detail than the Guardian letter’s pages will permit.

Is the deficit real, as the employers and USS themselves have asserted, or is it an accounting artefact, as the UCU trade union has claimed?

This is a key question, of course. Most important of all, until we know the source of the deficit we cannot begin to propose solutions. Continue reading

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Letter to Guardian


University pension ‘crisis’ triggered by HE market madness

Published in the Guardian as University staff are right to be striking (30 January 2018) 

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The university employers have provoked the largest vote for industrial action ever seen in the Higher Education sector. They have done this by overseeing what they present as a financial crisis for the University Superannuation Scheme (USS), and by threatening enormous cuts to the pensions of hundreds of thousands of university staff.

Yet none of this is necessary. It is the result of the misrepresentation of the finances of the USS, and the desire of a new breed of university managements to cut their pension liabilities and thereby ease the financing of new buildings and campuses.

Successive Pension Acts have encouraged managers of private sector schemes to exaggerate the risks of default. Combined with Quantitative Easing, this has led to a headlong abandonment of Final Salary Defined Benefit to “Defined Contribution” schemes, where employees rather than employers bear investment risk. Continue reading

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Essex University invokes ‘capability’ for research staff after mini-REF, and claims probationary lecturers ‘not academics’

From the national UCU website:

In September 2017, approximately one-eighth of the research-active staff were sent letters warning that their positions might be in danger, including the invocation of Capability proceedings to remove them from their jobs. This represents an alarming increase in the use of Capability at Essex. It is evidence not of individual failure of academics but a system that creates failure. As the eminent sociologist C. Wright Mills argued, if there are 1-2 people unemployed in a city, we may look to their individual psychology for answers, but if it is 5-10% of the population, then it is a social not an individual problem.

This development is linked to the invention at Essex of an internal REF process, requiring all researchers to achieve 4 publications which judges in our departments believe to be 3* – two of them accepted by September 2017 – even before national REF targets had been set. We now know only one is required. Linking this setting of internal publication targets to job security is an unprecedented move, practically unique to Essex, and one that has led to a widely-perceived de-professionalisation of academics and job threatsIt also represents mission creep: Capability procedures have never been systematically used for this before. Continue reading

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Manchester redundancies letter

Stop the Manchester cuts and redundancies

To be submitted to the Guardian.

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As staff across UK universities we are appalled at the proposed staffing cuts at the University of Manchester (Guardian, 13.05.17) including but not limited to the School of Arts, Languages and Cultures, the Faculty of Biology, Medicine and Health, and Alliance Manchester Business School. The proposals meant that 171 members of staff are set to be axed despite annual income from tuition fees exceeding £423 million (2015/16). The way in which these cuts are being made and the treatment of these committed teachers and respected scholars is abhorrent.

Unfortunately these plans are resonant of a Higher Education system now rooted in the market and underpinned by rampant managerialism that has little interest in critical public and inclusive education and a general disregard for the views or experience of academic staff. At the same time as cutting 171 jobs, the University plan to create 100+ posts for early-career academics. In our experience these positions are unlikely to offer security in contractual terms or opportunities to pursue scholarship.

In the context of Manchester University’s plans and our own current experience in universities, the necessity for a government committed to an alternative model of higher, further and adult education which will abandon a system based upon crude market competition and league tables, and abolish student fees and debts has never been more urgent.

Prof Sian Moore, University of Greenwich
Prof Andy Danford, University of Leicester
Prof Phil Taylor, University of Strathclyde
Elizabeth Lawrence, Sheffield Hallam University (retd.), UCU Immediate Past President
Marion Hersh, University of Glasgow, UCU NEC member
Sean Wallis, University College London, UCU NEC member, UCU Branch Vice President
Paul Errington, Teeside University, UCU NEC member, Senior lecturer
Xanthe Whittaker, University of Leeds, UCU NEC member
Jon Fanning, University of York, UCU committee
Gordon Asher, University of the West of Scotland
Richard Holmes, University of Bradford
Helen Mayall, Manchester Metropolitan University, UCU Site Convenor
Carol Cody, City of Liverpool College, UCU NW Women’s Equality Officer
John Yandell, Institute of Education, University College London, UCU Branch Secretary
Saladin Meckled-Garcia, University College London, Senior Lecturer, UCU Branch President
Tom Hickey, University of Brighton, Council for the Defence of British Universities
Lisa Palmer, Birmingham City University
Prof Dennis Leech, University of Warwick (retd.)
Prof David Midgley, University of Cambridge (retd,), Council for the Defence of British Universities
Rich Moth, Liverpool Hope University
Mehdi Husaini, Teesside University, Lecturer (retd.)
Elane Heffernan, Hackney College, UCU NEC elect
Marian Meyer, Bournemouth University, Senior Lecturer, UCU Branch Vice Chair
Tim Goodall, University of Leeds, UCU Branch President
William Edmondson, University of Birmingham (retd.), UCU Chair, West Midlands Retired Members
Christina Purcell, Manchester Metropolitan University, Lecturer
Geraldine Lee-Treweek, Manchester Metropolitan University, Principal Lecturer
Joao Florencio, University of Exeter, Lecturer, UCU LGBT Members Standing Committee
Annie Jones, Sheffield Hallam University
Rajesh Patel, Manchester Metropolitan University, Senior Lecturer
Mandy Brown, Lambeth College, UCU NEC
Gabriella Alberti, University of Leeds, UCU Equality Officer
Ruth Dar, University College London (retd.), UCU Branch Treasurer
Eda Ulus, University of Leicester, Lecturer
Julie Ryan, Manchester Metropolitan University
Prof Julian Williams, Manchester University
Prof Helen Colley, Manchester University
Cuneyt Suheyl Ozveren, Abertay University, UCU Branch President
Sean Doyle, UCL Institute of Education, Lecturer
Prof Cahal McLaughlin, Queens University Belfast

Add your name to this letter

Please note names will not appear automatically. The above is a subset of signatures that have already been collected.

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