USS annual profile update

atw_uss

ussdave said:

I seem to recall that it's 20% from the employer, not 20% including your own, but to be honest I wouldn't put it past them to purposefully word it vaguely so that we make an assumption...

The UCU modeller is quite handy for getting a rough idea of how the new changes will impact you: https://www.ucu.org.uk/ussmodeller

That is pretty depressing. I really can't see employees accepting this, regardless of the appetite for strike action. It would appear that any growth in DB will be almost halved for me from 2022 if this goes ahead (and I don't intend to work to 66, so it will be a lot less again). I'm still concerned that the valuation is based on March 2020 - I appreciate that there is rarely a 'best' time for this sort of thing, but you don't need a degree in economics to know that this was one of the worst possible times in the last century.

ussdave

atw_uss said:

ussdave said:

I seem to recall that it's 20% from the employer, not 20% including your own, but to be honest I wouldn't put it past them to purposefully word it vaguely so that we make an assumption...

The UCU modeller is quite handy for getting a rough idea of how the new changes will impact you: https://www.ucu.org.uk/ussmodeller

That is pretty depressing. I really can't see employees accepting this, regardless of the appetite for strike action. It would appear that any growth in DB will be almost halved for me from 2022 if this goes ahead (and I don't intend to work to 66, so it will be a lot less again). I'm still concerned that the valuation is based on March 2020 - I appreciate that there is rarely a 'best' time for this sort of thing, but you don't need a degree in economics to know that this was one of the worst possible times in the last century.

Agreed on all counts.

One thing that is worth paying extra attention to is the extra amount you'll end up in your IB pot.  This will offset some of the losses of DB, though obviously it's still rather poor overall.

In the past I made a decision that I was less bothered about the early retirement factors and hence decided not to pursue a bridging SIPP.  Based on the new proposals I think I will pivot back to my original plan and try to build something to bridge at least a few years worth.  This takes advantage of the extra DC contributions we'll get with the new model and hopefully the reduction in ERFs by taking the USS pension a few years later will somewhat offset the loss of DB accrual.  It will still require more contributions from me to achieve my targets but this way I will still retain a reasonable backbone of DB.

atw_uss

ussdave said:

atw_uss said:

ussdave said:

I seem to recall that it's 20% from the employer, not 20% including your own, but to be honest I wouldn't put it past them to purposefully word it vaguely so that we make an assumption...

The UCU modeller is quite handy for getting a rough idea of how the new changes will impact you: https://www.ucu.org.uk/ussmodeller

That is pretty depressing. I really can't see employees accepting this, regardless of the appetite for strike action. It would appear that any growth in DB will be almost halved for me from 2022 if this goes ahead (and I don't intend to work to 66, so it will be a lot less again). I'm still concerned that the valuation is based on March 2020 - I appreciate that there is rarely a 'best' time for this sort of thing, but you don't need a degree in economics to know that this was one of the worst possible times in the last century.

Agreed on all counts.

One thing that is worth paying extra attention to is the extra amount you'll end up in your IB pot.  This will offset some of the losses of DB, though obviously it's still rather poor overall.

In the past I made a decision that I was less bothered about the early retirement factors and hence decided not to pursue a bridging SIPP.  Based on the new proposals I think I will pivot back to my original plan and try to build something to bridge at least a few years worth.  This takes advantage of the extra DC contributions we'll get with the new model and hopefully the reduction in ERFs by taking the USS pension a few years later will somewhat offset the loss of DB accrual.  It will still require more contributions from me to achieve my targets but this way I will still retain a reasonable backbone of DB.

That's really useful to know, and I can see how it might change attitudes towards how and when to retire. Out of interest (and if you are happy to share here), could you explain how the SIPP might work out in these new circumstances? I'm 54 and will retire at some point in the next 6 years (but I'm not sure when) - I wonder if it would also make sense for me to have some sort of bridge outside USS. I have a personal pension with Aviva that I was thinkingof moving over, but I wonder now if it might be worth leaving it put or investing in a SIPP with lower charges instead (and adding to it).

Tomatillo

USSDave, can I check why you'd go for a SIPP rather than the DC part of USS to fund the portion of retirement before you take your DB payments? As I understand it, there's nothing to stop you from retiring early, drawing on your DC fund to cover that period and then taking the unreduced DB payments at your NPA. Is it so that you can maximise the tax free withdrawal when you start taking your DB payments? 

ussdave

Sorry if I was unclear above.  To clarify: Virtually all of my additional contributions will still be via salary sacrifice into the IB portion of the USS pension as this is the most tax efficient option on the way in and the way out.

But I will also open a separate SIPP with low charges and pay in the minimum amount required to ensure the account stays open and with minimal charges (which may be nothing - I haven't actually researched this properly yet).  I will at some point transfer out the contents (in full, as per the USS rules) of my IB pot into this SIPP.  The timing will be based on:

1) The target amount of money I need in my SIPP (including expected growth) to enable me to live off the SIPP for a number (TBD) years without touching my normal USS pension.

2) I will want to refill my IB as much as possible before retirement so I will want to transfer this at a point where I expect to still have a significant number of years to continue to pay into USS and salary sacrifice further money into the IB.  My target amount in the IB is still to have enough to max the TFLS/PCLS and have significant money left over to draw down via UFPLS to supplement my DB income until state pension kicks in.

The difficult part will be predicting the right point to "empty" my IB pot when I transfer into the SIPP and hoping that I don't suddenly get made redundant or decide to move to a non-USS job.

One thing to note is that this is possibly easier for me to achieve than someone closer to retirement.  My IB pot is quite small at the moment (only £15k) and have around 20 years to take action on all of this.  Of course, on the flip side, it's highly likely that the rules and my situation will change before retirement, which may make this a pointless endeavour. 

2nd_time_buyer

ussdave said:

I seem to recall that it's 20% from the employer, not 20% including your own, but to be honest I wouldn't put it past them to purposefully word it vaguely so that we make an assumption...

The UCU modeller is quite handy for getting a rough idea of how the new changes will impact you: https://www.ucu.org.uk/ussmodeller

Unfortunately not. The 20% is the combined contribution. So they are effectively matching employee contributions. The "missing" 10% or so is for deficit reduction.

The 20% is the same as currently however the employee contribution will go up, which means the employer contribution has gone down.

This is where I think the unions have cocked up. I think they would be better off targeting increased employer contributions to the DC portion of the scheme. Possibly even going fully DC. 

... my fear is we will eventually end up with a fully DC scheme anyway with lower employer contributions.

ussdave

2nd_time_buyer said:

ussdave said:

I seem to recall that it's 20% from the employer, not 20% including your own, but to be honest I wouldn't put it past them to purposefully word it vaguely so that we make an assumption...

The UCU modeller is quite handy for getting a rough idea of how the new changes will impact you: https://www.ucu.org.uk/ussmodeller

Unfortunately not. The 20% is the combined contribution. So they are effectively matching employee contributions. The "missing" 10% or so is for deficit reduction.

The 20% is the same as currently however the employee contribution will go up, which means the employer contribution has gone down.

This is where I think the unions have cocked up. I think they would be better off targeting increased employer contributions to the DC portion of the scheme. Possibly even going fully DC. 

... my fear is we will eventually end up with a fully DC scheme anyway with lower employer contributions.

Thanks for clarifying. That is rather disappointing news to say the least. 

I completely agree that UCU have been less than stellar on this. The dogmatic approach to retaining DB benefits above all else seems to have led to them not paying attention to other important aspects of the pension.

Tomatillo

I think it's very likely it will go completely DC before I get anywhere near retirement sadly. 

Tomatillo

2nd time buyer - that's how I'd read the 20% contribution too but I couldn't find anything that completely clarified it, did you find something that did? 

At least it is clear that the current DB accrued is 'safe' from the cap on inflation. This says:
"Any defined benefits members have already earned will still increase every year in line with previous increases. For benefits earned before October 2011, this is inflation in full. For benefits earned since then it is inflation in full up to 5%, and then by half if inflation is between 5% and 15%." 
https://www.uss.co.uk/news-and-views/latest-news/2021/09/09062021_the-2020-valuation 

2nd_time_buyer

I am sure it is somewhere else more concisely but I found it from the consultation document on the proposal.

http://www.ussemployers.org.uk/sites/default/files/field/attachemnt/uss-indicative-outcome-consultation.pdf

For example, on page 33

"... and with DC above the salary threshold at an overall contribution of 20% of salary),

together with a lower cost alternative to address the high opt-out rate...

Of course the people who are really going to get stung are those who can only afford to make lower contributions. As they are only proposing to match employee contributions e.g. 4% employee, 4% employer.