USS - From April - Employers Contribution and Salary Sacrifice.

Simes122

With the pending changes to USS, I have a query about Employers contributions above the new lower threshold of £40k.   I understand employers will contribute 12% and Employees 8% above the threshold.   Does salary sacrifice matter here?

(Sample figures for easy maths)

A:    If salary is £80k, so £40k of earnings above the threshold, with no salary sacrifice, I'd see a deduction above the threshold of 8% for pension, and my employer would be putting in 12% into my Investment builder.  Thus I'd see £3200 pa (from me), and £4800pa from my employer for a total of £8k into my Investment builder.

B: If I salary sacrificed my salary by 50%, would I still see that joint contribution of £8k as in A) going into my Investment Builder on top of the balance of earnings from my salary sacrifice?

I think I'm asking, is the employers contribution above the threshold independent of salary sacrifice arrangements?  Also, Is there a cap on the employers contribution, or is it 12% on everything above the threshold?

Grateful for your thoughts,

Simon

Southend_2

Your contribution above the threshold is not 8% though, as I understand it. You'll still pay the same 9.8% employee contribution from salary. The combined employer and employee input to your investment builder account is 20% of above threshold salary. 

Simes122

Southend_2 said:

Your contribution above the threshold is not 8% though, as I understand it. You'll still pay the same 9.8% employee contribution from salary. The combined employer and employee input to your investment builder account is 20% of above threshold salary. 

I got this from the USS website:

“ You’ll build up more flexible Investment Builder savings, each year, while building fewer benefits in the Retirement Income Builder. Combined member and employer contributions to the Investment Builder are 20% of salary above the salary threshold, with 8% coming from you and 12% from your employer. But you’ll still contribute 9.8% of your salary in total, with the remainder supporting the Retirement Income Builder. ”

So I take that to mean, 1.8% of my contributions will go towards deficit reduction.  

itchyfeet123

So I take that to mean, 1.8% of my contributions will go towards deficit reduction.  

I think this should receive more attention in the current dispute than the headline about reduced pensions. Isn't there an equity issue with later retirees subsidising earlier?

Tomatillo

itchyfeet123 said:

So I take that to mean, 1.8% of my contributions will go towards deficit reduction.  

I think this should receive more attention in the current dispute than the headline about reduced pensions. Isn't there an equity issue with later retirees subsidising earlier?

I think that's right but it is quite opaque. Similarly the emloyer pays in 21.4% of the whole salary but only 12% over the threshold £40k is going to the investment builder. Does anyone know how this is calculated for the annual allowance? Does the full 21.4% count? 

I agree that it's surprising that this hasn't received more attention in the dispute. 

Simes122

Tomatillo said:

itchyfeet123 said:

So I take that to mean, 1.8% of my contributions will go towards deficit reduction.  

I think this should receive more attention in the current dispute than the headline about reduced pensions. Isn't there an equity issue with later retirees subsidising earlier?

I think that's right but it is quite opaque. Similarly the emloyer pays in 21.4% of the whole salary but only 12% over the threshold £40k is going to the investment builder. Does anyone know how this is calculated for the annual allowance? Does the full 21.4% count? 

I agree that it's surprising that this hasn't received more attention in the dispute. 

Ooh, that's a really interesting point. I have no idea, but reading this about annual allowance:

• For defined contribution (DC) pensions, it is the total contributions from all sources paid during the tax year.
• For defined benefit (DB) pensions, it is the capitalised value of the increase in the accrued benefits over the tax year.

So the DB bit would be fine, but how does it work on the DC side - total contributions from all sources - would sound like the 21.4% might be part of that?

Tomatillo

On your Q B, again I can't find a clear answer on whether the employer's contributions are based on your full salary or the salary after any additional salary sacrifice. It might depend on your institution I suppose. As one piece of anecdata, when I started making (small) additional salary sacrifice relatively recently there was no change to the usual (also small!) payments into my investment builder from standard contributions above the salary threshold. Based on that it looks as if my additional salaray sacrifice made no difference to the way the usual employer and employee contributions were calculated. I don't know whether that is always the case. 

Simes122

Tomatillo said:

On your Q B, again I can't find a clear answer on whether the employer's contributions are based on your full salary or the salary after any additional salary sacrifice. It might depend on your institution I suppose. As one piece of anecdata, when I started making (small) additional salary sacrifice relatively recently there was no change to the usual (also small!) payments into my investment builder from standard contributions above the salary threshold. Based on that it looks as if my additional salaray sacrifice made no difference to the way the usual employer and employee contributions were calculated. I don't know whether that is always the case. 

Thanks, I've asked my pension administrator at my institution to see what happens.  I'd hope employers contributions into the DC bit are based on your normal pre-sal sac salary.

ussdave

I can't imagine that the contributions are based on your salary post-sacrifice.  It certainly hasn't been the case with the DB / RB portion of the pension previously.

Useful to have an official answer though of course.

Simes122

ussdave said:

I can't imagine that the contributions are based on your salary post-sacrifice.  It certainly hasn't been the case with the DB / RB portion of the pension previously.

Useful to have an official answer though of course.

I agree.  Reading a bit more,  our contributions/costs are 9.8% regardless, though think this is going to 11% in Apr?  Above the £40k, we’ll see 20% of pre Sal sac salary appear in our DC pot.  So if we earned 80k, 40k would be above threshold.  And we’d see 8k in our DC pot.  That 8k would come off our annual allowance as would the more complex calculated amount from our RIB and any voluntary payment.  If we Sal sac, that just affects our tax and ni position.  We’d still see that 20% in our DB plus any amount we add voluntarily.  I think it’s as straightforward as that, but it’s all a bit opaque in how they’ve described it.

or more simply, we’ll pay 9.8% of salary to pension and employer pays their bit.  This buys us:

DB benefits from the first £40k, capped. (Max of 1/85 x £40k) pa.
DC benefits of 20% of Sal above £40k
Plus any additional DC benefit we choose to contribute.

I think it’s as simple as that.

MPLMPL

Contribution is no longer increasing to 11%, stays at 9.8%.

https://www.uss.co.uk/for-members/your-statutory-notice-of-changes-to-uss

What’s not changing

Your contribution rate will remain at 9.8%, and there are no changes to Normal Pension Age. You’ll also still receive life cover and other benefits for loved ones, and will still be entitled to ill health cover. And benefits built up before 1 April 2022 will remain unchanged.