The Universities Superannuation Scheme (USS) is being pressed to ignore advice from a joint expert panel, which would store up problems with "pernicious consequences" for the higher education sector.
Pension experts and economists from the UK, USA, Australia, Canada, Cyprus and the Netherlands warned against heeding the recommendations of the panel, which was set up to end a wave of strikes across the country over plans to end defined benefit (DB) accrual.
In its first report, the expert group, chaired by Joanne Segars, had concluded too much weight had been applied on a self-sufficiency test when conducting the valuation, and there should be a fresh evaluation of risk and necessary contribution rates, with the trustee urged to "consider taking account of expected future investment returns".
However, these suggestions proposed "fundamentally misrepresent the economics of DB pensions", warned the group of 39 pension experts and economists in a letter co-ordinated by independent consultant John Ralfe.
They added this would underestimate the cost of pension promises, both in future and in the past, as well as deficit recovery contributions (DRCs) needed, so the scheme should solely measure the economic cost of these factors.
The letter was sent to USS chief executive Bill Galvin, and copied to Segars, Universities UK chief executive Alastair Jarvis, University and College Union general secretary Sally Hunt, and The Pensions Regulator chief executive Lesley Titcomb.
The joint expert panel also suggested delaying de-risking the scheme for 10 years, arguing this would reduce the scheme's deficit by £2.6bn and the cost of current benefits by around 1.3%.
But, the letter's signatories warned this would lead to "double counting" and a "perpetual motion machine" with sponsors able to issue long-term bonds specifically to buy equities, and then "take credit for the higher expected, but unearned, return on equities".
Relying on equities is "exactly what got so many UK and US pension schemes into serious trouble" before, the letter said and, instead, the "correct discount rate for USS pensions is the market discount rate for inflation-linked bonds with a similar payment date and a similar underlying obligor to USS".
The response comes as the joint expert panel continues with ‘phase two' of its review, in which it is considering whether an alternative methodology should be adopted for future valuations, and building a more collaborative approach between parties.
Defined benefit (DB) schemes that provide GMPs must revisit and, where necessary, top-up historic cash equivalent transfer values (CETVs) that have been calculated on an unequal basis, a landmark court judgment says today.
Regulators must act now to impose some "proper regulation" to stop another defined benefit (DB) transfer advice disaster, saysTim Sargisson.
Opportunities for defined benefit (DB) schemes to pursue investment approaches that help repair the UK’s economy cannot stand in the way of improving member outcomes, Aegon says.
More members transferred out of defined benefit (DB) pension schemes in October after September's record lows while values were surprisingly stable, according to XPS Pensions Group's Transfer Watch.
Joanna Smith says trustees will need to accurately identify if covenant issues are short-term affordability concerns, or the start of more material deterioration.