USS v TPS university pension

Simon979

Thanks very much hyubh for this information. I actually joined my previous uni (first uni job) in 2012, then moved to the post-92 uni in 2014. So I never had a final salary option, as I understand it.

Interesting that you would recommend moving regardless of the benefits, although I guess these only accrued over 2 years anyway.

In any case, thanks again for your help!

hyubh

Simon979 wrote: »

I actually joined my previous uni (first uni job) in 2012, then moved to the post-92 uni in 2014. So I never had a final salary option, as I understand it.

Correct, the USS switched to CARE for new joiners in 2011.

Interesting that you would recommend moving regardless of the benefits, although I guess these only accrued over 2 years anyway.

Quite the contrary. If you are currently in the USS and are able to switch to the TPS, I would for the reasons I gave, namely the benefit structure is pure DB not hybrid, slightly more generous (e.g. in the revaluation rate for active members), and with a much better chance of staying that way going forward. How long you have been in the USS is immaterial because there is no final salary link to protect.

Simon979

Ah that clears things up. I was wondering why the advice online elsewhere seemed to be so cautious - suggesting I should speak to a financial advisor etc - but I guess that was due to concerns to protection of final salary.

Final question (thanks so much already hyubh): So it seems I have nothing significant to lose from a cash equivalent transfer (USS to TPS)? No enormous fees, or loss of my contributions?

hyubh

Simon979 wrote: »

I was wondering why the advice online elsewhere seemed to be so cautious - suggesting I should speak to a financial advisor etc

Generic guidance for transferring out of a DB pension will always be like that because the giver doesn't want to (or cannot legally) be construed as giving financial advice proper. When the latter is provided, the advisor is on the hook if the transferee decides they were misled or weren't properly informed some years down the line. As such, all the respective administrators can do is give factual advice on their particular scheme.

So it seems I have nothing significant to lose from a cash equivalent transfer (USS to TPS)? No enormous fees, or loss of my contributions?

To be honest, I'm still unclear as to what you are actually asking. I thought we had already concluded that transferring your USS benefits into the TPS is impossible, because you are outside the 12 month time limit to do so? Conversely, if it is just that you are thinking of opting out of the USS and enrolling into the TPS going forward instead, no CETV is involved because nothing is actually transferred - your USS benefits will just become 'preserved' (alias 'deferred'):

https://www.uss.co.uk/members/members-home/leaving-the-scheme

Simon979

To be honest, I'm still unclear as to what you are actually asking. I thought we had already concluded that transferring your USS benefits into the TPS is impossible, because you are outside the 12 month time limit to do so? Conversely, if it is just that you are thinking of opting out of the USS and enrolling into the TPS going forward instead, no CETV is involved because nothing is actually transferred - your USS benefits will just become 'preserved' (alias 'deferred'):

Got it. I still thought I might be able to transfer the accrued cash, but minus some extra benefits or other...never mind, like I said, I'm easily confused! So your help much appreciated.

So to clarify, it still seems worth leaving USS (and preserving my contributions), and then starting from scratch with TPS...let me know if incorrect, otherwise thanks again!

Simon979

An update for anyone interested: according to my university, I can transfer benefits from USS to TPS within 12 months of joining the TPS scheme (not only within 12 months of joining new employment). This seems to contradict online information (which I am not allowed to post here as I am a new user).

I'm afraid I've learned to be suspicious of the advice provided by my uni finance team, so I can't say for sure that this will turn out to be the case...

hyubh

So to clarify, it still seems worth leaving USS (and preserving my contributions), and then starting from scratch with TPS

Yes.

Simon979 wrote: »

An update for anyone interested: according to my university, I can transfer benefits from USS to TPS within 12 months of joining the TPS scheme (not only within 12 months of joining new employment). This seems to contradict online information (which I am not allowed to post here as I am a new user).

Check with Teachers Pensions (or SPPA if you're in Scotland), i.e. the administrators of the TPS.

jem16

Simon979 wrote: »

An update for anyone interested: according to my university, I can transfer benefits from USS to TPS within 12 months of joining the TPS scheme (not only within 12 months of joining new employment). This seems to contradict online information (which I am not allowed to post here as I am a new user).

This is a grey area as the eligibility is this;

"Eligibility
If you want to transfer benefits from a previous pension scheme into the Teachers’ Pension Scheme you must submit an application to proceed within 12 months of entering pensionable teaching service."

Now technically I would say that you have entered pensionable teaching service 2 years ago even though you haven't yet chosen to join the pension scheme.

As said best to ask the administrators.

kidmugsy

At some point in the future you might find it advantageous to have two schemes. For example, you might want to retire earlier than the usual TPS age, and live in part by transferring the USS pension to a private pension and then drawing it down, while avoiding being penalised for taking your TPS early.

Come to think of it, it might almost be worth asking USS for a CETV quotation (cash equivalent transfer value). Then manage the private pension yourself until you are 55 (or whatever the magic age is then).

ec113

HI everyone,

I've stumbled upon these posts and they have been very useful, as I'm in the process of deciding whether to stay in USS or move to TPS.

I have a breakdown of the contributions and benefits accrued for the two, looking at two case scenarios with the respective accrual rates. I thought perhaps some of you could confirm that these make sense? Overall, it seems that TPS is better at the 9.6% rate but not as good as USS at the 10.2% rate or above.

For this example below, I've picked an employee earning a salary just within the contribution rate of 9.6% - let's say £41,450 for the year.

In USS the employee would pay contributions of £3,316 (£41,450 x 8%) over the year
In TPS the employee would pay contributions of £3,979 (£41,450 x 9.6%) over the year.
In USS the employee would accrue benefits of £552.66 annual pension (£41,450 x 1/75th) plus £1,658 tax free lump sum (£41,450 x 3/75th)
In TPS the employee would accrue benefits of £727.19 annual pension (£41,450 x 1/57th) but £0.00 tax free lump sum

Now lets say the employee continues to earn £41,450 a year and accrues 20 years of pension membership:
In USS the total accrued benefits would be £11,053 annual pension (£552.66 x 20 years) plus £33,160 tax free lump sum (£1,200 x 20 years)
In TPS the total accrued benefits would be £14,543.8 annual pension (£727.19 x 20 years) but £0.00 tax free lump sum
In TPS, if the employee wanted to get a £33,160 tax free lump sum (like that which USS would provide), using the commutation factor of 1:12 (as provided by TPS), the employee would need to give up £2,763.33 of annual pension, resulting in an annual pension of £11,780.47 and £33,160 tax free lump sum.

We can see from the above that the contribution of the employee into TPS is £663 more than USS a year (£3979 - £3316). Comparing the two pensions at the end with the same lump sum, the employee in TPS is getting £727 more a year than in USS, given their increased contribution of £663 compared to USS. I know that contributions are not directly related to the benefits in a defined benefits scheme, but I thought I could use this as an index of the cost vs. benefits, if that makes sense. So the TPS employee in this scenario is paying in more than the USS employee, but they're not losing out.

However, below, it works out differently when the contribution goes up to 10.2% for TPS (currently above £41.500). As I understand it, on this band you would be paying 10.2% on the whole of the salary, not just the amount over £41.500. So the calculations below:

The employee earns a salary of £45,000 for the year.
In USS the employee would pay contributions of £3,600 (£45,000 x 8%) over the year
In TPS the employee would pay contributions of £4,590 (£45,000 x 10.2%) over the year.
In USS the employee would accrue benefits of £599.99 annual pension (£45,000 x 1/75th) plus £1,800 tax free lump sum (£45,000 x 3/75th)
In TPS the employee would accrue benefits of £789.47 annual pension (£45,000 x 1/57th) but £0.00 tax free lump sum

Now lets say the employee stays on £45,000 a year and accrues 20 years of pension membership:
In USS the total accrued benefits would be £11,999.8 annual pension (£599.99 x 20 years) plus £36,000 tax free lump sum (£1,200 x 20 years)
In TPS the total accrued benefits would be £15,789.4 annual pension (£789.47 x 20 years) but £0.00 tax free lump sum
In TPS, if the employee wanted to get a £36,000 tax free lump sum (like that which USS would provide), using the commutation factor of 1:12, they would need to give up £3,000 of annual pension, resulting in an annual pension of £12,789.4 and £36,000 tax free lump sum.

Therefore in this scenario, the contribution into TPS is £990 more than USS a year, and in the end the employee in TPS is getting £789 less a year compared to USS. Therefore they seem to be losing out.

Does this make sense to you?

I was almost convinced I should move to TPS, also given the better revaluation benefits (e.g. uncapped CPI), but now I'm again unsure given the above.

Thanks for any useful comments you may have