AVCs and scheme move from final salary to career average

Workingpoor

Hi everyone,

I finally reached a point where I could put money into AVCs with my final salary scheme. I could do 15 percent of my income, and for 4 years put in 8 percent, then just recently added the 7 percent.

I have now learned that it is very likely my employer will change our scheme from final salary to career average. Is it at all worth doing these AVCs with career average? I am paying in about a quarter of what I take home a month for this, and I am wondering if I need to get out of them because it isn't worth it under career average (maybe it isn't under final salary either, but I thought it was).

I have been in the scheme almost 10 years and would have about 20 years to go until retirement. There is also a lump sum component.

I am wondering if there might be a chance that some of us AVC payers might be protected in the move, but am not sure (unless anyone out there has inside knowledge on USS).

Any thoughts would be welcome. This is a lot of money for me to be paying each month so it would be good to know if there are conditions under which it might be a good idea, or whether I should withdraw. They haven't moved the scheme yet - talks are ongoing.

Workingpoor

kidmugsy

Lord knows what will become of USS: DC in the end, presumably.

Meantime, your AVCs have the advantage (unless things were changed while my back was turned) of letting you eventually draw Tax-Free Lump Sum from them, while thereby drawing more Final Salary pension from that section of the main scheme. That "Final" salary will be based on your earnings when the Final Salary section closes, rather than when you finally leave USS employment: that, at least, is the present proposal. Mind you, AVCs presumably will have the same advantage in the CA section: tax-free lump sum without depleting the monthly pension.

In your shoes, I wouldn't know whether to continue contributions or to hesitate and await further news. I do wonder whether they have even given much consideration the fate of AVCs: are they going to say that contributions before a certain date are attached to the FS section, and thereafter to the CA section?

One idea might be this: could AVC contributors press the USS Trustees to allow AVC funds to be transferable to personal pensions, so that members can cut the link between that money and USS if they so desire? Could that otherwise rather useless trade union help press for such a change? The point is that if you could transfer your funds to a PP provider, you could get away from the Pru with its highish charges and restricted choice of investments, and use the new flexibility from age 55-57 onwards. And if there is the chance of "exit", that might persuade USS and the Pru to treat you all better, lest you exit en masse. The more I reflect on this suggestion, the more I warm to it. To the barricades, mes amis!

AlanP_2

I'm no expert on the USS or any other scheme for that matter but worthwhile looking here:

http://www.uss.co.uk/SchemeGuide/FinalSalaryBenefitssection/maximisingyourpension/Pages/default.aspx

and here

http://www.uss.co.uk/SchemeGuide/CareerRevaluedBenefitssection/maximisingyourpension/Pages/default.aspx

and seeing what is said about the AVCs.

To my mind the first question is are you in the MONEY PURCHASE AVC scheme or the ADDED YEARS AVC as they are very different?

AlanP_2

kidmugsy wrote: »

That "Final" salary will be based on your earnings when the Final Salary section closes, rather than when you finally leave USS employment: that, at least, is the present proposal.

Kidmugsy - As asaid above I know next to nothing about the USS scheme but I do know that when the LGPS moved across form FS to a CARE basis in April this year this is not how the previously accrued "Final Salary" portion was treated.

Your n-years of 1/60th (and 1/80th if applicable) contributions is set against your FS when you retire (or leave scheme).


Not saying that USS will go the same way but in the LGPS approach is "fairer" as it doesn't take away previously given/earned benefits.

hyubh

AlanP wrote: »

Not saying that USS will go the same way but in the LGPS approach is "fairer" as it doesn't take away previously given/earned benefits.

That depends... if a person's pay doesn't keep up with inflation it would be better for the FS benefits to become deferred. Conversely, if maintaining a FS link would typically be better for current FS section members, then existing CARE members may well ask why older colleagues' interests should be privileged yet again. (Unlike the LGPS, when the USS went CARE for new starters back in 2011 existing members stayed in the old FS scheme - that's one of the reasons why reform of the USS has come round again relatively quickly, since its FS section is a lot more expensive to fund than the CARE one.)

Workingpoor

Wow - very useful replies, thank you! I am a newcomer to this thread and miight stay for awhile.

I have the added years AVCs. I agree that we need to press to be treated reasonably with the transfer; I am a bit shocked at how easily they can withdraw from what I thought were contracted commitments (naive me).

kidmugsy

AlanP wrote: »

when the LGPS moved across form FS to a CARE basis in April this year this is not how the previously accrued "Final Salary" portion was treated.

I dare say, but the proposal for USS is as I stated it. You have to remember that USS is a private sector scheme: it can't loot the taxpayer the way that LGPS can.

AlanP_2

kidmugsy wrote: »

I dare say, but the proposal for USS is as I stated it. You have to remember that USS is a private sector scheme: it can't loot the taxpayer the way that LGPS can.

I'm not getting into that one.

Personally I would have been seriously hacked off if they had fixed my FS at the point of changeover to CARE. Around 75% of my LGPS benefits to date were accrued via a six figure transfer in from a Private Sector PP pot that I had contributed 15% of salary to.

If they had fixed the final salary the projected benefits of the transfer would have been blown out of the water and I would have put the money into something very different.

Hypothetical, but it would be interesting to see what the relevant Ombudsman / Case Law would have made of a situation like that.

Mis-selling Scandal by Local Government headlines maybe.

AlanP_2

hyubh wrote: »

That depends... if a person's pay doesn't keep up with inflation it would be better for the FS benefits to become deferred.

Not sure we had the deferred option available, certainly wasn't an explicit offer made to members at that time (where I work anyway).

mark55man

I also remember when my company stopped our DB Scheme we had the choice of
a. staying in the scheme and tying our payment to final salary (but without gaining any more years service)
b. becoming deferred and letting the index linking raise the final amount


However it did not become a matter of guessing whether salary kept up with inflation, there were technical reasons (pertaining to how various limits were multiplied up by inflation) that made it a no brainer to become deferred


As it happens my salary hasn't kept up with inflation so that's a win / win in the pension world, if not the real world

Gustav_Delius

Workingpoor wrote: »

I have the added years AVCs. I agree that we need to press to be treated reasonably with the transfer; I am a bit shocked at how easily they can withdraw from what I thought were contracted commitments (naive me).

I too was under the naive impression that when I paid for added years, I was buying a contracted commitment on the part of USS to pay the promised benefits. What they promised in their brochure was: "The Added Years AVC is part of the Final Salary section of the scheme and is a final salary type arrangement. This means that the benefits you receive are linked directly to your service and pensionable salary at retirement or leaving."

Are USS really allowed to reduce that from final salary to current salary when they change their rules? Would that not represent misselling, given that their brochure was quite definite about what I was purchasing?