We are concerned about the transparency of decision making in the USS pension scheme. The USS has announced a substantial deficit, but the data and methods they have published are very limited, making them impossible to judge.

The USS manages £60bn in assets on behalf of its members. The most recent USS accounts and reports indicate the scheme has a large deficit. However, the USS provides insufficient information about the methods used to value its assets and liabilities. They present no confidence intervals around the point estimate of the deficit, indication of estimation error, or any sensitivity analyses. They provide virtually no details of what data or analytic code they used to come to their conclusions. Even the CMI 2014 report underpinning the mortality assumptions is not publicly
available.

The USS and Mercer list the assumptions used on page 106 of the most recent report. They also indicate how they have changed the assumptions between 2013 and 2017. In brief, they assume:

1. A fall in the expected long-term nominal investment return from 4.7% to 2.8%.
2. An increase in general pay growth from CPI (2.6%), to RPI + 1% (4.4%).
3. Life expectancy increasing by 1.5% per year.

We find these assumptions curious. First, how can expected investment returns have fallen by 40% in four years? Surely a collapse in returns on this scale would be reflected in the equity or bond markets? Equity markets in high income countries are up 51.7% in the last four years (11% per year). Their assumptions are consistent with a 0.33% per year return on investments after CPI. Is this rate of return possible without a global recession?

Second, in 2014 the USS assumed cumulative pay growth over the following four years of 16%. Yet general pay increases have fallen well short of this, cumulatively increasing by 5.8%. Their estimates of the deficit assume that in future general pay will rise at a rate of RPI +1% (4.4% per year). Is there any evidence that universities will award cost of living increases at this rate? Furthermore, the ONS and the RSS has repeatedly warned that the RPI is a flawed measure of inflation, and should not be used. So why are the USS using it to estimate the deficit?

Third, there has been little increase in life expectancy since 2011. The Institute and Faculty of Actuaries estimates that mortality is around 11% higher in 2016 than would have been expected based on the historical trend. This means life expectancy is lower, which will lower the USS’s liabilities.

A shorter version of this letter was published by the Financial Times on September 19th 2017. The link to that and a PDF of this version can be found here

Prof Steven Julious
Professor of Medical Statistics, University of Sheffield
Prof Mark Gilthorpe
Professor of Statistical Epidemiology, University of Leeds
Dr Fred Martineau
Clinical Research Fellow, London School of Hygiene and Tropical Medicine
Dr Abigail Fraser
Reader in Epidemiology, University of Bristol
Prof Danny Dorling
Professor of Geography, University of Oxford
Prof Yoav BenShlomo
Professor of Clinical Epidemiology, University of Bristol
Dr Rhian Daniel
Reader in Medical Statistics, Cardiff University
Sedona Sweeney
Health Economist, London School of Hygiene and Tropical Medicine
Dr Ben Goldacre
Senior Clinical Research Fellow, University of Oxford
Prof Charles Taylor
Professor of Statistics, University of Leeds
Dr Joanna Reynolds
Assistant Professor, London School of Hygiene and Tropical Medicine
Sandra Mounier-Jack
Associate Professor, London School of Hygiene and Tropical Medicine
Prof Steven Haberman
Professor of Actuarial Science, Cass Business School, City, University of London
Prof Andrew Clare
Associate Dean, Cass Business School
Dr William Johnson
Lecturer, Loughborough University
Prof Kate Tilling
Professor of Medical Statistics, University of Bristol
Catherine Pitt
Assistant Professor of Health Economics, London School of Hygiene and Tropical Medicine
Prof George Davey Smith
Professor of Clinical Epidemiology, University of Bristol
Dr Eleanor Hutchinson
Assistant professor, London School of Hygiene and Tropical Medicine
Professor David Spiegelhalter
Professor of Biostatistics, University of Cambridge
Dr Tara Beattie
Assistant Professor, London School of Hygiene and Tropical Medicine
Prof Saul Jacka
Professor, University of Warwick
Prof Martin Bobak
Professor of epidemiology, University College London
Dr Beniamino Cislaghi
Assistant Professor, London School of Hygiene and Tropical Medicine
Prof Jonathan Sterne
Professor of Medical Statistics and Epidemiology, University of Bristol
Dr Luisa Zuccolo
Senior Research Fellow, University of Bristol
Dr Natasha Howard
Assistant Professor, London School of Hygiene and Tropical Medicine
Neil Davies
Research Fellow, University of Bristol
Prof Tim Cole
Professor of medical statistics, University College London Great Ormond Street Institute of Child Health
Dr James Woodcock
Programme Lead, University of Cambridge
Dr Hynek Pikhart
Reader in Epidemiology and Medical Statistics, University College London
Dr Ana Maria Buller
Deputy Director Gender, Violence & Health Centre, London School of Hygiene and Tropical Medicine
Dr Shelley Lees
Associate Professor in Anthropology of Gender, Violence and HIV, London School of Hygiene and Tropical Medicine
Prof Graham Medley
Professor of Infectious Disease Modelling, London School of Hygiene and Tropical Medicine
Prof Marcus Munafò
Professor of Experimental Psychology, University of Bristol
Dr Josephine Borghi
Associate Professor, London School of Hygiene and Tropical Medicine
Prof Peter Green
Professorial Research Fellow, University of Bristol
Dr Sam Marsh
Teaching Fellow, University of Sheffield
Prof Guy Nason
Professor of Statistics, University of Bristol
Prof Chris Metcalfe
Professor of Medical Statistics, University of Bristol
Dr Laura Howe
Reader in Epidemiology and Medical Statistics, University of Bristol
Benjamin Palafox
Research Fellow in Pharmaceutical Policy & Economics, London School of Hygiene and Tropical Medicine
Dr Fern Terris-Prestholt
Associate Professor in the Economics of HIV, London School of Hygiene and Tropical Medicine
Dr Krishnan Bhaskaran
Associate Professor in Statistical Epidemiology, London School of Hygiene and Tropical Medicine
Prof Bianca De Stavola
Professor of Medical Statistics, University College London
Prof Martin McKee
Professor of European Public Health, London School of Hygiene and Tropical Medicine
Dr Clare Chandler
Associate Professor, London School of Hygiene and Tropical Medicine
Dr Aaron Reeves
Associate Professorial Research Fellow, London School of Economics
Matthew Quaife
Research Fellow, London School of Hygiene and Tropical Medicine
Dr Giulia Greco
Assistant Professor and MRC Fellow, London School of Hygiene and Tropical Medicine
Prof Caroline Relton
Professor, University of Bristol
Prof Qiwei Yao
Professor of Statistics, London School of Economics
Dr Melisa Martinez-Alvarez
Assistant Professor, London School of Hygiene and Tropical Medicine
Prof Simon Wood
Professor of Statistical Science, University of Bristol