If you work in one of the pre-1992 UK universities you are probably a member of the Universities Superannuation Scheme. And a jolly good scheme it is too. Although not possibly quite as good as when you joined it. If you joined the scheme before 2011 then you will have started in a final salary scheme but since 2016 will have been paying into a career average scheme (people who joined after 2011 were in a career average scheme already). As you are reading this on the ICAEW academia network blog you are already probably aware that the reasons behind the final salary part of the scheme closing to new members in 2011 and then everyone being in a career average scheme since 2016 are related to the Pensions_Crisis (the tag used by the Financial Times if you are the sort of person who wants to follow what is happening in pensions in myFT).
We have just gone past the date, 31 March 2017, for USS’s regular triennial valuation. What happens next is quite interesting. I am using the phrase quite interesting to signify the kind of thing that makes me and some of my colleagues ‘geek out’ but causes bizarre trance like states in friends and family. This is for the geeks…
The reporting date is 31 March 2017 but the actual deadline for producing the report is some months later. Some of the basis for the valuation report is already determined. The pensions people keep talking about the technical provision and I think that is the same as the IAS 19 defined benefit net liability, or it might be the value of the scheme’s total obligations using the projected unit credit method – I’m still trying to get to the bottom of that. Pensions people talk as if that is set in stone and relative to other measures or tests that does seem to be the case. The employers’ covenant - a measure that would feed into the period of any recovery plan – seems to be a matter of some debate.
I should probably confess at this point that the main reason I am interested in the USS valuation is that I am, much to my surprise, a trade union activist. What I have found interesting is the debate around the pension scheme that takes place among the activist community and occasionally in the letters pages of the FT or the Guardian. The accounting geek in me is fascinated by the debates and conversations taking place in various forums, among trade union activists, in formally established negotiating committees, directly between academics and their employers, sometimes bringing high level academic expertise and authority to the discussion and always bringing passion and a sense of social justice.
Accounting academics are well used, I think, to the idea of judgment being used to create financial statements. The idea of the numbers being a matter of negotiation is also familiar but I think we are more used to the idea of the figures being negotiated between preparers and auditors (perhaps that is just my bias as a financial accountant). Sometimes it is hard to get across to people (well students) why the exercise of judgment matters or the political nature of accounting decisions. However I have seen debates where people are arguing passionately about the relative merits of gilts or equities as the starting point for a discount rate. That passion is driven by them knowing full well that a small change in the discount factor has the potential to create a material impact on them in both the short and long term, either in a demand for larger contributions now or for reduced benefits in retirement.
I think the bit of the debate that we, accountants that is, are probably not very good at engaging in is the political aspect of these accounting discussions. When I teach my students about pensions it is easy to explain the issue of where risk is located in a defined benefit scheme compared to a defined contribution scheme and it is even possible to open up a discussion about who is best placed to carry the risk, or who should carry the risk. I have also tried to use pensions to explain to students how everyone is linked together and operating with multiple identities, using the idea that employees concerned about their pension are on one hand concerned about the return to labour and on the other the return to financial capital. (To be fair at that point they have usually glazed over and start asking whether that is going to be in the exam).
Before I go off and re-read IAS 19 I have one last thought. Why does everything seem more risky and difficult for funded schemes like USS which has roughly £60 billion in assets, compared to unfunded schemes like the Teachers Pensions Scheme (TPS: what you are probably in if you work at a post-1992 university) which is I believe, unfunded? Fundamentally that doesn’t make sense to me.
As a former pension scheme auditor I have a similar outlook to you. In my final year UG teaching we focus a lot on the political behind the technical in financial accounting. My students find it an eye-opener!