USS proposed pension changes.

hyubh

kidmugsy wrote: »

"The USS Trustees estimated that the employers would need to pay a contribution rate of 25.1% in order to retain the current employee benefits.

Which is to say, including an open final salary section. The fact the final salary section is expensive relative to the current CARE one is already clear in the USS's annual reports and valuations. E.g., see p.7 of this:

http://www.uss.co.uk/Actuarial%20Valuation/Actuarial%20Report%20as%20at%20March%202013.pdf

Here, the scheme actuary calculates a combined (employer and employee) future service rate (i.e., ignoring historical liabilities) of 26.7% for the FS section and 19.1% for the current CARE section. Despite this, there's a common employer rate actually paid between the two sections (16%) and only a marginally different employee rate (7.5% vs. 6.5%):

http://www.uss.co.uk/HowUssIsRun/employers/Pages/ParticipationFAQs.aspx

If nothing else, surely the FS section continuing for future accrual is unfair for newer members in the CARE section?

Under the cost sharing rule introduced in 2011 this would mean that the employee contribution rate would have to increase to 12.3%.

While I realise it likely only effects chief execs of large councils, the highest CARE LGPS employee rate is actually higher than that at 12.5%.

We consider that these rates are unaffordable for employers and employees alike."

Surely whether employees would accept a contribution rate of around 12% is an open question? If they are under 50 and in the FS section, there's a chance the answer would be 'yes'.

Although a private scheme, USS is part of the public pensions "club" - I assume to make it easier for people go to and fro to the NHS, scientific civil service, or whatever. I wonder how the brave new world of USS will affect this

There's already a bit of debate on this concerning the LGPS:

http://lgpsregs.org/images/AdministrationGuides/TransfersInv1.0 (see the final page)

That said, the significance of the Club should in principle diminish with the new CARE schemes and (in particular) new five year rule for maintaining a final salary link with old FS benefits - if you are out of a public sector scheme for more than 5 years you now lose the right to a Club transfer when rejoining. (More exactly, the 5 year rule is being introduced as the CARE schemes are introduced - LGPS in England and Wales this year, everyone else next.)

hyubh

Southend1 wrote: »

I personally would be happy to pay 12.3% and keep our current benefits.

Out of interest, does the UCU have a general position yet, whether it's in terms of rates, keeping the FS section open, etc.? With the LGPS the unions involved didn't seem to make a big deal of FS vs. CARE as such, and instead went big on making the new scheme if anything more (not merely almost-as-much-as) attractive to lower paid employees.

Southend1

hyubh wrote: »

Out of interest, does the UCU have a general position yet, whether it's in terms of rates, keeping the FS section open, etc.? With the LGPS the unions involved didn't seem to make a big deal of FS vs. CARE as such, and instead went big on making the new scheme if anything more (not merely almost-as-much-as) attractive to lower paid employees.

Not sure what the UCU position is yet. Although I am a USS member I am not eligible for UCU representation at the university where I work and am therefore a member of another union. Not sure where this will leave us if it comes to a dispute as we will be relying on UCU to represent all USS members and may not be able to take part in any industrial action. This is particularly relevant to those on lower pay grades who are members of Unison or Unite who can't afford to be chucked out into some rubbish DC scheme.

guymo

UCU's latest briefing note on this is available at

http://www.ucu.org.uk/circ/pdf/UCUHE225.pdf

kidmugsy

guymo wrote: »

UCU's latest briefing note on this is available at

http://www.ucu.org.uk/circ/pdf/UCUHE225.pdf

"in response to the so-called financial crisis": Dave Spart lives.

Moneyer

A key question about any proposed DC section (whether in addition to or completely replacing DB): would it be a ringfenced fund, or would it potentially be raided to make up a shortfall in the legacy DB section?

If ringfenced, I doubt the employers could afford to switch to DC: they're relying on future contributions to make up the shortfall in the DB section, but if contributions to DB stopped they'd have to stump up for the shortfall separately themselves.

If NOT ringfenced, the entire value of the DC section could easily be wiped out by DB liabilities. Paying into it would be tantamount to buying shares in an insolvent company, and even with the employers' contribution I don't see that membership would be an attractive proposition - we might well be better off withdrawing and starting a private pension….

Moneyer

Southend1 wrote: »

I personally would be happy to pay 12.3% and keep our current benefits.

Agreed! It seems to me the way USS have approached this is entirely wrong in principle: the trustees have "negotiated" (without consulting members) a deal agreeable to employers, and now intend to fight the employers' corner during negotiations with unions/members. In other words, they have behaved as though their primary responsibility is to the employers, when in fact it is to the scheme members.

What they SHOULD do is the following:

(1) Compute the shortfall between the existing fund value and the amount required to honour all promises regarding accrued benefits. Exercise their right to force (not negotiate!) the employers to make up this shortfall on a reasonable timescale. Hive off this fund to ensure the promised benefits are provided.

(2) Open negotiations with employers and unions/members on an equal footing, about how the scheme will work in future….

kidmugsy

Moneyer wrote: »

A key question about any proposed DC section (whether in addition to or completely replacing DB): would it be a ringfenced fund, or would it potentially be raided to make up a shortfall in the legacy DB section?

What an unhappy thought. Presumably an actuary could tell us whether that could be legal. If illegal I'm confident that it wouldn't happen: there are enough non-employer trustees to put a stop to it. Anyway, have you ever heard of it happening at the many companies with active DC schemes and closed DB schemes?

Moneyer wrote: »

If ringfenced, I doubt the employers could afford to switch to DC: they're relying on future contributions to make up the shortfall in the DB section, but if contributions to DB stopped they'd have to stump up for the shortfall separately themselves.

"It is currently proposed that employers will contribute 12% of pensionable salary above the salary threshold into the DC section and employees will contribute 6.5%." This suggests two things. First, the employers see themselves as having enough money not only to fund this for the upper tranche of the salary of the very well paid, but also enough to throw a bit away on this little sweetener for the less well paid. Secondly, perhaps they see a future (after the CARE section closes presumably) where their contribution falls from 16% to 12%, leaving the other 4% to be diverted to funding the two legacy DB schemes. I dare say that's much the position that many companies are in. By capping the Final Salary liabilities by basing them on salary at the closing of the section, rather than retirement salary, they may feel that they've made the cost affordable.

But there are many things about USS that I feel I don't understand. Why, for example, has there been such a rush to expand the membership over the last decade or so? What about the old advice "If you are in a hole, stop digging"?

"Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away"

Moneyer

kidmugsy wrote: »

Why, for example, has there been such a rush to expand the membership over the last decade or so? What about the old advice "If you are in a hole, stop digging"?

If the scheme is reliant on future contributions to meet existing liabilities, the rationale for expanding membership seems painfully clear. The word "pyramid" springs unfortunately to mind….

kidmugsy

Moneyer wrote: »

The word "pyramid" springs unfortunately to mind….

Indeedy. Spot on.