The USS Trustee's risky strategy

How much risk, and what types of risk, is the Universities Superannuation Scheme (USS) taking? This is a critical question for universities across the UK and many of their employees. Will the fund have enough money to pay for all our pensions? Will it run out? Or is there a significant risk that we are collectively overpaying? In September 2021, David Miles and James Sefton, from Imperial College Business School, stepped into this vacuum, publishing 'How much risk is the USS taking?'. The paper presents important, accessible and highly readable analysis which estimates how likely the USS is to default over time. Their work is particularly relevant to the current UCU dispute with 69 employers over the benefit cuts that Universities UK (UUK) is planning to implement on the basis of the 2020 USS valuation. In this Brief, we assess the assumptions, replicate the results, explore further their model and consider potential extensions. We demonstrate that for a cautious model with reasonable assumptions for assets and asset growth, the fund has a less than 7% chance of defaulting for the duration that pensions promises are due, but a greater than 80% chance of being over funded by at least {\pounds}100bn, and nearly 50% chance of having over {\pounds}400bn. We offer warm thanks to David Miles and James Sefton for sharing their code and data, for their helpful conversations and clarification. Their analysis is infinitely clearer, better and more credible than anything the USS has produced. We hope this paper will be the beginning of more work in this area. All errors are our own.