Is now a good time to join USS or should I wait?

coolit

I'm in need of some advice or dumbing down of pension schemes! 

I have worked at a UK university for the past year, and have recently moved into a new job in an academic department. In my previous role, I was not eligible for a USS pension, and was auto-enrolled in the universities cash balance scheme.  Currently I pay in 4%, 'with a corresponding credit of 15% of pensionable pay'. Now that I know I have a permanent job with the uni (last role was fixed contract), I will likely increase my contributions (can increase contributions to 10% with uni paying 27%). 

With my new job, I have been offered into the USS scheme. I understand that USS are planning on increasing contributions soon, depending on talks, which may make the scheme unstable if people opt out as they can't afford to pay 11% (if I am wrong about this please feel free to correct/inform me). 

What I am unsure about is whether or not, despite the current talks going on around USS, it is still a better scheme for me to join than the standard university pension. Is it still considered a good scheme, even with the difficulties at the minute?

I know more details may be needed to give informed advice - if so please bare with me as I've been struggling to understand what everything means! I have tried to do my own research into this, reading about both pensions and asking advisors - but everyone I've asked have said they are unable to give me advice and to look into the material myself. Which I have done, but none of the material addresses the potential insecurity of the USS pension. 

I'm just looking for some informed perspectives from people who are a part of the USS scheme, or who know more about pensions than me! I am trying to make me own informed decision but have found it difficult to understand as I don't have any experience in choosing pensions (always been auto-enrolled).

Thanks in advance.

Dazed_and_C0nfused

A key factor is whether you would be moving from a defined contribution scheme, where you build up a pot of money, to a defined benefit scheme, where the contributions levels aren't really that important, what matters is the pension amount you would accrue each year and any associated inflation proofing.

If it is defined benefit them the next things to check is if it's a final salary or career average (CARE) scheme.

2nd_time_buyer

"...Now that I know I have a permanent job with the uni (last role was fixed contract), I will likely increase my contributions (can increase contributions to 10% with uni paying 27%)"

Can you clarify is that via the USS defined benefit pension or is that some other local defined contribution scheme? 

If the latter it  seems remarkably good (37% total??). 

If the former, this does not seem to co-inside with the USS contributions either now or in October when they are due to go up:

"Members pay 9.6% of salary, and employers pay 21.1%. In October, the combined contribution rate is due to rise to 34.7%, as the final increment in the phased increases that followed the 2018 valuation. For members, your contribution will go up to 11%, and employers will pay 23.7%"

Albermarle

I think it must be a no brainer to join any pension scheme where the employer pays 24%.

A lot only pay 3%.

2nd_time_buyer

Albermarle said:

I think it must be a no brainer to join any pension scheme where the employer pays 24%.

A lot only pay 3%.

You are right but it is worth bearing in mind that a significant proportion of the above is for deficit reduction 

hyubh

coolit said:

I have worked at a UK university for the past year, and have recently moved into a new job in an academic department. In my previous role, I was not eligible for a USS pension, and was auto-enrolled in the universities cash balance scheme.

Cash balance schemes are a borderline con - formally defined benefit (DB), yet it isn't a retirement income that is 'defined' but a pot of money on retirement. In most cases members would be better with a defined contribution (DC) scheme, where contributions are immediately invested.

With my new job, I have been offered into the USS scheme. I understand that USS are planning on increasing contributions soon, depending on talks, which may make the scheme unstable if people opt out as they can't afford to pay 11% (if I am wrong about this please feel free to correct/inform me). 

The current USS is a 'hybrid' scheme, pure DB (specifically CARE DB) up to pensionable pay of just under £60K, then DC for the proportion of pay above that. In the CARE part you build up a mix of tax free cash + a regular income on retirement. It's a good, pseudo-public sector scheme, and still worth it at 11% (remembering you also get tax relief on pension contributions).

none of the material addresses the potential insecurity of the USS pension. 

The potential insecurity is very little, given participating universities are collectively responsible for deficits, and due to a rule change after an Oxbridge college pulled out a few years ago, can no longer freely disassociate by paying off any deficit to date that pertains just to them (put another way, the wealth of individual Oxbridge colleges effectively subsidises the other USS employers, from an 'employer covenant' point of view). This makes it quite different to the other big non-public sector DB scheme still open (RPS), which is fully 'sectionalised' so that individual employer failure can (has has) led to some members falling into the Pension Protection Fund (PPF).

That said, I wouldn't expect the DB section to remain open for many years to come - it might, I just wouldn't bank on it. However, the chances of staying open for further accrual is a very different question to the security of benefits built up to the point ongoing accrual does cease.

kidmugsy

You say "...  I will likely increase my contributions (can increase contributions to 10% with uni paying 27%)."  Golly.  And can you later reduce your contributions if you want to?

For both schemes: can you contribute by salary sacrifice?  What is the scheme's Normal Retirement Age?

For USS: (i) How soon must you decide?  For example must you join within a year of qualifying to join it, or is there no restriction?  (ii) If you join USS are you able to transfer into it the value of your existing university cash balance scheme?

kidmugsy

I've just googled and found this
https://resources.unitetheunion.org/cash-balance-pension-schemes

As you'll see it concludes "This analysis indicates that cash balance schemes tend to offer limited value to their members but much better relative value to older contributors than to younger contributors."  So, two questions. (i) How old are you?  (ii) If you joined USS would you be allowed to change your mind later, leave it, and rejoin your university cash balance scheme?

hyubh

kidmugsy said:

You say "...  I will likely increase my contributions (can increase contributions to 10% with uni paying 27%)."  Golly.  And can you later reduce your contributions if you want to?

10% isn't a lot, unless you're comparing to statutory minimum AE...

kidmugsy said:

For USS: (i) How soon must you decide?  For example must you join within a year of qualifying to join it, or is there no restriction?  (ii) If you join USS are you able to transfer into it the value of your existing university cash balance scheme?

All transfers into the USS nowadays go into the DC section.

To be honest, I'm struggling with your assumption that a staff cash balance scheme vs. the USS isn't a no brainer in favour of the latter, even if it isn't as great as in your day...

kidmugsy

hyubh said:

kidmugsy said:

You say "...  I will likely increase my contributions (can increase contributions to 10% with uni paying 27%)."  Golly.  And can you later reduce your contributions if you want to?

10% isn't a lot, unless you're comparing to statutory minimum AE...

It's the 27% that struck me as being a lot.

kidmugsy

hyubh said:

To be honest, I'm struggling with your assumption that a staff cash balance scheme vs. the USS isn't a no brainer in favour of the latter, even if it isn't as great as in your day...

I didn't make any assumption other than that it's wise to understand the options in detail.