USS - General discussion

gwt1965

PJM_62 said:

As I understand it :

Any changes to scheme only affect your benefits built up after that point. Benefits built up before that get ring fenced.

This is right. Although, as the experience of the last few years has shown, changes to the scheme going forward are always possible and future years may not accrue pension as generously as they do now. 

One issue to consider if you plan to retire before normal retirement age is early retirement factors. These can change without consultation (as they will do in October) and adversely affect pension you've already accrued. 

swindiff

As PJM_62 says you can take your DC pot before your DB pension, however that may not be the best way to maximise your tax free cash from the pot.  If it is taken at the same time as the DB pension, the "value" of this is considered when calculating how much tax free cash you can take.

Universidad

PJM_62 said:

As I understand it :
Any changes to scheme only affect your benefits built up after that point. Benefits built up before that get ring fenced.

This is essentially right - they can't really change the rules of pension you have already accrued. 

However, things can still happen which devalue your accrued benefits, within the scope of the rules as they were at the time.

This can happen if the rules talk about something external to the pension itself, which may be subject to change. Examples of this might include inflation, final salary, state pension age, etc. All external facts of the world which can influence the value of your pension.

So if, for example, your pension has an inflation cap, and inflation exceeds the cap, then your accrued benefits lose real value.

In USS when the final salary scheme was closed this was done without a final salary link - your "final salary" was deemed to be your salary at the point at which the scheme closed. This will have significantly devalued those final salary benefits for a lot of younger members, although it is heavily masked by decades of wage supression in the sector. I did a very basic analysis of that effect here.

On the plus side, USS ties your benefits to state pension age at the time of accrual, rather than your own expected state pension age, so accrued benefits in the CARE scheme are not affected by changes to state pension age - unlike in the public sector, where a change to SPA is the biggest risk to accrued benefits. Taking into account the state pension itself, a rise in SPA of a single year would cost many of us tens of thousands of pounds. 

Then again, there are complications to how one would choose to take their USS pension if you have, for example, tranches of pension over three decades with four different retirement ages, but no way to take those tranches separately. 

I have often wondered if this would be open to challenge - surely the only reason they could close the final salary scheme without a link would be if the scheme was truly closed? If so, how can they require us to take our CARE and FS benefits together as one pension? Surely if the scheme has remained open, then we're entitled to link our actual Final Salary to the FS portion. Put another way, I don't see how they can, effectively, pick an arbitrary date to stop tracking our salaries!

gwt1965

Universidad said:

I have often wondered if this would be open to challenge - surely the only reason they could close the final salary scheme without a link would be if the scheme was truly closed? If so, how can they require us to take our CARE and FS benefits together as one pension? Surely if the scheme has remained open, then we're entitled to link our actual Final Salary to the FS portion. Put another way, I don't see how they can, effectively, pick an arbitrary date to stop tracking our salaries!

In what sense has the FS scheme remained open? 

Universidad

gwt1965 said:

In what sense has the FS scheme remained open? 

In the sense that we can't decouple our CARE pension from it. 

It seems to me that if you want to claim that your "final salary" will be set at the date the scheme closes, then that scheme must come to a complete and distinct stop.

Continuing to pay into a USS scheme that can't be taken in isolation of the old FS scheme is at odds with that.

I'm not seriously claiming that the FS section of USS is open. What I'm asking is why my "Final Salary" was set at some date in the past, despite the fact I continued to accrue pension in a scheme that is not sufficiently distinct from it.

gwt1965

Would there be any advantage in decoupling FS and CARE? I guess I've never really seen them as being—or needing to be—distinct entities. In effect there is no separate FS scheme and CARE scheme (and the two ran side by side from 2011 to 2016 for old and new members); there is just the Universities Superannuation Scheme, in which benefits have been accrued and uprated using different methods across the years. Once you move to accrual on a career average basis, final salary becomes irrelevant. 

Universidad

gwt1965 said:

Would there be any advantage in decoupling FS and CARE? 

Well the normal benefit age of the majority of my final salary benefits is 63.5, but there are no late retirement factors applied between 63.5 and 65.

The majority of my CARE benefits have an NPA of 65.

So I can either take my entire USS pension at 65, and lose out on 1.5 years of Final Salary pension, or I can take them at 63.5 and have my CARE pension reduced by whatever the ERFs are at that point.

Admittedly ERFs are supposed to be cost neutral, but the factors are changing in October to be much less favourable, and I believe the lum sum would be similarly reduced, even though it is a one off payment rather than an annual one.

After canning my Final Salary without a link, and thus devaluing the accrued benefits by thousands of pounds, it seems like double dipping to then force me to lose more of it.

gwt1965 said:

In effect there is no separate FS scheme and CARE scheme

Which makes me wonder why my Final Salary stopped being linked to my actual salary, since I was still, effectively, paying in to the same scheme. Instead my "final salary" was pegged to an arbitrary date (which in my case just happened to be a few months before a major promotion...)

Public sector benefits switched to CARE without canning the Final Salary link, and delineated the different pension schemes so that they can be taken separately...

gwt1965 said:

Once you move to accrual on a career average basis, final salary becomes irrelevant. 

It doesn't become irrelevant to Final Salary benefits already accrued!

Simes122

seraphina said:

Also - can you take the Investment Builder pot at a different time to the DB pension? So could I take my additional DC pot a couple of years earlier but leave the DB bit until I actually stop working?

Thanks!

As has already been answered, this probably isn't the best way to do it for a couple of reasons.

1.  It's a hybrid scheme, so you can get more tax free out of the pension effectively taking the benefits 'together'.
2.  Don't forget the MPAA which means once you access your Investment Builder you need to be careful not to trigger the MPAA which would limit future contributions to £10k a year.

I've just retired so have a reasonable understanding of how best I took my benefits for my circumstances and while there has been lots of complex discussion. in simple terms you can get 6.6667x your annual pension as a Retirement builder lump sum when taking it as a hybrid up to the HMRC maximum across all benefits.  If you have enough in your Investment Builder, you can leave that completely untouched protecting your capital, and still take 25% of that tax free later on.  They don't quote you this option unless you ask, but it's essentially just taking your Retirement Builder first (but in a hybrid way) and your Investment Builder later.   Their default options reverse commute your investment builder to annual pension using some pretty poor factors, which is quite costly to your IB pot when you work it all out!

bluebirdy

Hello USSers,

Checking in and just wondering how many others of you here *jumped* in the end before the ERF changes?

I did. One week in to JUBILATION (which is what the Spanish call retirement and a much better word) and so far so good. 

Taking three months of nothing to get academia out of my head, and to work out if I can, indeed, live on my pension, then we’ll see what comes next. Lots of creative, fun and travel plans and exercise/wellbeing in place. Not sure if I want or need to do more work and a bit uncertain about my post-Jubilation identity but there’s time to work that out.

Mortgage has gone, savings topped up, October never felt so relaxed. 😆

Asimovs_nightfall

Well done!  Can you ever get academia out of your head?  I'm wondering because I want to bow out in the next 12 months, although dependent on what happens in the budget of course.  I don't want that habit of free labour following me around!