USS pension: is 1/85 accrual rate + 3x lump sump DB pension any good?

OldScientist

thegentleway said:

OldScientist said:

mark5 said:

thegentleway said:

hyubh said:

There's some maths in this very thread that suggests you'd be likely to do better with your own 10% contributions and damn the 20% your employer is throwing down. 

Hardly likely...

@hyubh I wonder if you'd be so kind as to clarify: are you saying my assumption of 5% growth is unlikely? I thought this was rather conservative since on average the stock market has returned 7% per year when accounting for inflation. You only need 2.74% growth to beat DB pension at 45 years from retirement...

I would quite happily swap my dc pension with 3% employers contribution for your 1/85 plus x3 lump sum and widows pension. 

Yes you don’t have the best db pension out there but you do have a better pension than the majority of the UK. 

Contribute to a defined contribution pension alongside your existing pension and see what it returns you in the future! 

The changes to USS over the last 10 years going from 1/80th, final salary, fully index-linked to 1/85th, career average salary, inflation capped (currently 5%, soon to be 2.5%) coupled with an increase in contributions (both employee and employer) has caused many to question the value of the pension compared to alternatives - the type of calculations considered here are one facet of that questioning. 

It's gone from 1/75 accrual rate and was capped at 10%. Although it was a weird two tier cap: the first 5% matches the increase in official pensions, with half of the excess above 5% matched to a maximum of 10%.

Thanks for this reminder - I was thinking of the situation pre-2011 to now (missing out the middle bit!). The recent history is rather tortuous (leaving aside the fluctuations in contribution rates).

Pre-2011. 1/80th, Final salary, RPI linked
2011-2016. 1/75th, career average (new members only), CPI linked, inflation cap as you described (definitely weird)
2016-22(?), 1/75th, final salary closed for pre-2011 members, inflation cap as for 2011-2016
Now, 1/85th, inflation cap to 2.5% (from 2026)

According to https://www.ussemployers.org.uk/news/uss-employers-back-changes-pension-scheme there was a 20% opt out rate in 2021.

thegentleway

OldScientist said:

thegentleway said:

OldScientist said:

mark5 said:

thegentleway said:

hyubh said:

There's some maths in this very thread that suggests you'd be likely to do better with your own 10% contributions and damn the 20% your employer is throwing down. 

Hardly likely...

@hyubh I wonder if you'd be so kind as to clarify: are you saying my assumption of 5% growth is unlikely? I thought this was rather conservative since on average the stock market has returned 7% per year when accounting for inflation. You only need 2.74% growth to beat DB pension at 45 years from retirement...

I would quite happily swap my dc pension with 3% employers contribution for your 1/85 plus x3 lump sum and widows pension. 

Yes you don’t have the best db pension out there but you do have a better pension than the majority of the UK. 

Contribute to a defined contribution pension alongside your existing pension and see what it returns you in the future! 

The changes to USS over the last 10 years going from 1/80th, final salary, fully index-linked to 1/85th, career average salary, inflation capped (currently 5%, soon to be 2.5%) coupled with an increase in contributions (both employee and employer) has caused many to question the value of the pension compared to alternatives - the type of calculations considered here are one facet of that questioning. 

It's gone from 1/75 accrual rate and was capped at 10%. Although it was a weird two tier cap: the first 5% matches the increase in official pensions, with half of the excess above 5% matched to a maximum of 10%.

Thanks for this reminder - I was thinking of the situation pre-2011 to now (missing out the middle bit!). The recent history is rather tortuous (leaving aside the fluctuations in contribution rates).

Pre-2011. 1/80th, Final salary, RPI linked
2011-2016. 1/75th, career average (new members only), CPI linked, inflation cap as you described (definitely weird)
2016-22(?), 1/75th, final salary closed for pre-2011 members, inflation cap as for 2011-2016
Now, 1/85th, inflation cap to 2.5% (from 2026)

According to https://www.ussemployers.org.uk/news/uss-employers-back-changes-pension-scheme there was a 20% opt out rate in 2021.

I didn't realise it was 1/80 pre 2011. I joined in 2014.
20% opt out is rather concerning! Must admit this cap reduction is making me reconsider as inflation is high at the moment. 

NedS

OldScientist said:

Thanks for this reminder - I was thinking of the situation pre-2011 to now (missing out the middle bit!). The recent history is rather tortuous (leaving aside the fluctuations in contribution rates).

Pre-2011. 1/80th, Final salary, RPI linked
2011-2016. 1/75th, career average (new members only), CPI linked, inflation cap as you described (definitely weird)
2016-22(?), 1/75th, final salary closed for pre-2011 members, inflation cap as for 2011-2016
Now, 1/85th, inflation cap to 2.5% (from 2026)

According to https://www.ussemployers.org.uk/news/uss-employers-back-changes-pension-scheme there was a 20% opt out rate in 2021.

Pre-2011 pension is revalued at CPI from April 2011 onwards.

OldScientist

thegentleway said:

OldScientist said:

thegentleway said:

OldScientist said:

mark5 said:

thegentleway said:

hyubh said:

There's some maths in this very thread that suggests you'd be likely to do better with your own 10% contributions and damn the 20% your employer is throwing down. 

Hardly likely...

@hyubh I wonder if you'd be so kind as to clarify: are you saying my assumption of 5% growth is unlikely? I thought this was rather conservative since on average the stock market has returned 7% per year when accounting for inflation. You only need 2.74% growth to beat DB pension at 45 years from retirement...

I would quite happily swap my dc pension with 3% employers contribution for your 1/85 plus x3 lump sum and widows pension. 

Yes you don’t have the best db pension out there but you do have a better pension than the majority of the UK. 

Contribute to a defined contribution pension alongside your existing pension and see what it returns you in the future! 

The changes to USS over the last 10 years going from 1/80th, final salary, fully index-linked to 1/85th, career average salary, inflation capped (currently 5%, soon to be 2.5%) coupled with an increase in contributions (both employee and employer) has caused many to question the value of the pension compared to alternatives - the type of calculations considered here are one facet of that questioning. 

It's gone from 1/75 accrual rate and was capped at 10%. Although it was a weird two tier cap: the first 5% matches the increase in official pensions, with half of the excess above 5% matched to a maximum of 10%.

Thanks for this reminder - I was thinking of the situation pre-2011 to now (missing out the middle bit!). The recent history is rather tortuous (leaving aside the fluctuations in contribution rates).

Pre-2011. 1/80th, Final salary, RPI linked
2011-2016. 1/75th, career average (new members only), CPI linked, inflation cap as you described (definitely weird)
2016-22(?), 1/75th, final salary closed for pre-2011 members, inflation cap as for 2011-2016
Now, 1/85th, inflation cap to 2.5% (from 2026)

According to https://www.ussemployers.org.uk/news/uss-employers-back-changes-pension-scheme there was a 20% opt out rate in 2021.

I didn't realise it was 1/80 pre 2011. I joined in 2014.
20% opt out is rather concerning! Must admit this cap reduction is making me reconsider as inflation is high at the moment. 

Yes, even if inflation dropped below 2.5% for next 30 years (and the Bank of England implied inflation curves, https://www.bankofengland.co.uk/statistics/yield-curves suggest inflation values between 2.5 and 4.0% for the next 40 years - although nobody really knows), the impact of a short sharp spike similar in magnitude to what we've already undergone (e.g. 12.5% for a year) would, in the absence of subsequent deflation, still permanently knock 10% off the real pension value.

It is definitely not an easy decision, since opting out from DB means you're exchanging one set of risks (inflation) for another (real asset growth in a DC pension) and foregoing the 20+% employer contribution. I was surprised that the opt out was that high.

Southend_2

There are probably some factors influencing the opt out rate that are fairly HE specific and skew the figures. For example, PGRs employed as Associate Lecturers who can't afford the deductions or don't foresee a long career in HE. Or international staff who may not want a UK pension. Or fixed term teachers who are employed elsewhere. Of course there must be permanent staff who feel the employee contributions are unaffordable but my gut feeling is that the opt out rate isn't as high as the headline figures suggest. I understand a low cost option is being investigated to address the opt out rate but I suspect the employers have an  ulterior motive... ie to undermine the main scheme further and push towards DC.

hyubh

Southend_2 said:

I understand a low cost option is being investigated to address the opt out rate but I suspect the employers have an  ulterior motive... ie to undermine the main scheme further and push towards DC

... which is where UCU has gone completely wrong. The 2.5% cap on active and deferred member revaluation, combined with employee contribution rates not tiered for age, are fundamentally not in the interests of younger members. DC would be a better option for them!