USS funding position -- how to understand the situation?

guymo

Update on the USS situation:

There's a potential new proposal for USS reform. It is much the same as the previous one, but with a higher employee contribution (8%) in return for a faster accrual rate in the CRB scheme (1/75 rather than 1/80) and a higher earnings cap on CRB benefits (£55k rather than £50k).

http://www.employerspensionsforum.co.uk/en/pension-schemes/uss/15jan.cfm

hyubh

guymo wrote: »

Update on the USS situation:

There's a potential new proposal for USS reform. It is much the same as the previous one, but with a higher employee contribution (8%) in return for a faster accrual rate in the CRB scheme (1/75 rather than 1/80) and a higher earnings cap on CRB benefits (£55k rather than £50k).

http://www.employerspensionsforum.co.uk/en/pension-schemes/uss/15jan.cfm

If I'm reading this right, the idea is still for everyone (both FS and 2011 CARE section members) to move to the revised CARE scheme, yes? If so, I would have thought it would be a a no-brainer for an existing CARE member to accept the proposals - slightly higher employee rate in exchange for a slightly higher accrual rate. For high earners a generous DC provision on top and no banded employee rate, LGPS/TPS/NHS-style, in exchange for a cap on DB accruals, seems a good deal too, or am I missing something...?

On the employer side I find it mildly surprising there's still no talk of ungrouping the employer rate, given how ex-polytechnics also in the LGPS can whinge about their LGPS rates.

Edit: just noticed the new thread. Better comment over there!

dunroving

hyubh wrote: »

If I'm reading this right, the idea is still for everyone (both FS and 2011 CARE section members) to move to the revised CARE scheme, yes? If so, I would have thought it would be a a no-brainer for an existing CARE member to accept the proposals - slightly higher employee rate in exchange for a slightly higher accrual rate. For high earners a generous DC provision on top and no banded employee rate, LGPS/TPS/NHS-style, in exchange for a cap on DB accruals, seems a good deal too, or am I missing something...?

On the employer side I find it mildly surprising there's still no talk of ungrouping the employer rate, given how ex-polytechnics also in the LGPS can whinge about their LGPS rates.

Presumably any contributions to the USS prior to the changes will result in unchanged benefits(?) Or will everyone's pension be based on a Career Average basis, even for contributions paid into the final salary part of the scheme?

Or, say someone has been with USS in the final salary portion for 20 years and then these changes are implemented they pay for a further 10 years, what will be the basis for calculation of the pension?

Would it be 1) 20/80ths of their highest salary plus 2) 10/75ths of their average salary (with a cap of £55k applied to any year over £55k)?

Or would it be 30/75ths of their average salary (i.e., all bets are off as far as final salary is concerned)?

For both 1) and 2) what time range would be used for the two calculations? If a person's salary increases after the change, will the new "highest salary" still be used for portion (1)? Or will it be based on the "highest salary" prior to the changeover? And for (2) will career average really be average over the whole 30 years? Or average only over the 10 years after the changeover?

Confusing!!

guymo

dunroving wrote: »

Would it be 1) 20/80ths of their highest salary plus 2) 10/75ths of their average salary (with a cap of £55k applied to any year over £55k)?

In this example -- 20 years in final salary scheme up to April 2016, then 10 further years service -- the pension would be 20/80 of the salary at April 2016, indexed by CPI, plus 10/75 of the average salary from April 2016 to retirement, subject to the cap.

kidmugsy

dunroving wrote: »

Presumably any contributions to the USS prior to the changes will result in unchanged benefits(?) Or will everyone's pension be based on a Career Average basis, even for contributions paid into the final salary part of the scheme?

Judging by guymo's helpful summary, the position will be that you'll get a final salary pension based on your relevant accruals, but the final pensionable salary that it's based on will be yours at the instant of the final salary section closing to new contributions. I suppose one of the things in favour of this policy is that at least the young, who will broadly be hardest hit (since they have many more years in which to get promotions), will have many years of notice to cope with the change. Even months on, I still find it harsh, though. It's part of the price for the scheme having had so many disgracefully extravagant policies for many years, I dare say.

dunroving

guymo wrote: »

In this example -- 20 years in final salary scheme up to April 2016, then 10 further years service -- the pension would be 20/80 of the salary at April 2016, indexed by CPI, plus 10/75 of the average salary from April 2016 to retirement, subject to the cap.

Thank you.

On a separate note, the new suggested regulations (the most recent HEC recommendations, that the ballot is asking about) also say something about any salary over the £55k cap, the difference (say, £5k for someone on a salary of £60k) would have deductions taken and put into a DC scheme? If I'm reading the footnotes in the UCU modeller correctly, the employer would contribute 12% of the £5k difference and the employee would contribute 8% of the £5k difference into a DC scheme - is that correct? (so for the example person on £60k, that would be £1,000 a year would be paid into a DC scheme by employer and employee)

Maybe my maths is wrong but it seems for some people, the proposed new pension arrangements could work out well for them? I'm thinking of people at the top of their scale who don't anticipate promotion. For example, someone at the top of Reader scale on approx. £60k (depending on their institution).

The scenario would be thus:

Old scheme: Retire on 30/80ths of £60k (highest salary) = £22500 (comprising £15,000 FS benefits built up in the 20 years prior to changeover and £7,500 built up in the subsequent 10 years)

New scheme: Pension of 20/80ths of £60k (highest salary) = £15,000, plus pension of 10/75ths of £60k (average salary after 2016) = £8,000, for a total pension of £23,000. PLUS a DC pot of £10,000 (10 years at £1,000 per year, as explained above).

I will try plugging these numbers into the modeller.

[ETA: Interesting, when I create a (somewhat) similar scenario in the modeller, it doesn't work out. The main odd thing I see is that for the 20 years prior to the changeover date of April 2016, it says £15,295 pension benefits built up under the existing FS scheme (i.e., no changes to the scheme at all), but under any of the new suggestions, only £13,959 in FS benefits built up].

dunroving

As an adjunct to my post above, I was wondering how accurate people think the USS online modeller is? When I input similar information to the online USS modeller and to the UCU modeller that has been put online so people can compare the various proposed deals to the current arrangements (http://defenduss.web.ucu.org.uk/whats-my-pension/), I get quite different results (I mean for the leftmost column, headed "benefits if your current scheme is unchanged"), especially when I adjust for early retirement by only a couple of years.

Also, in the online USS modeller, it says "NPA is currently 65. However, this will increase in line with future increases to State Pension Age (SPA). When SPA increases it will mean that any service after the date of the change will have that higher NPA applying to it, service before the change will have the previous NPA applied to it. The modeller will be amended if and when NPA increases in future."

- surely SPA has already changed 9i.e., the law changing SPA has been passed)? Or do they mean they will implement this into the modeller at some point after the change actually affects people (i.e., when the first people who have a state pension age > 65 actually are due to retire?)

In relation to that, when it says "When SPA increases it will mean that any service after the date of the change will have that higher NPA applying to it, service before the change will have the previous NPA applied to it." does this mean the higher NPA will apply to contributions from the point the legislation is passed (this has already happened, correct?) or when the change starts affecting people (December 2018 for men)? So if a male retires from USS prior to December 2018 (even if they are at the time not yet 65), will all of their contributions have a NPA of 65 applied? Or is the new NPA of 66 already being applied because the law has already been changed?