USS vs TPS University Pension advice needed

Educateeer

Hello.

I'm an academic and work at a post-1992 Uni (a former Poly) - I currently pay into TPS. There's a job going at pre-1992 Uni and they use USS. I'm in the process of applying for the job but I've looked into USS and it makes worrying reading - I'll post something I found online below. I wondering if I might actually be better staying where I am - from a financial standpoint at least. I'm 51 and have been paying into TPS since I was 29. I earn about 53k per annum. with the latest pay rise.  If got this new job, might go onto the next pay scale (I'm currently at the top of a pay scale) but then there may be opportunities to where I am currently too and, after tax, the difference in salary wouldn't be that big anyway. I need to make the right decision here as I don't have any savings - just my TPS at the moment, so my financial priority is my pension. My questions are...

1. In financial terms, should I stay where I am because the pension currently seems much better?
   
2. If I did go for this new job, does anyone have any pension advice eg opt-out, overpay, transfer my TPS into USS etc? 
   

Any advice is appreciated. Thanks very much for your time.

P.S. Here is something I found online - I'm new on here, so I'm not sure if links will work straight away, hence cut and paste...

The comparison with the Teachers Pension Scheme (TPS), in which university lecturers in the post-92 sector are enrolled, is the most striking. As the green line indicates, a 40-year-old post-92 lecturer earning £40k is promised a pension of £1050 per annum in exchange for the same 9.8% member contribution as a USS member. That’s nearly 2.5 times greater than the current USS pension on the assumption that inflation will run at 2.5% and nearly 3 times greater if inflation runs at 3%.

Most of the difference between a TPS pension and the current USS pension is down to inflation revaluation. Since the graph plots monetary values in real, inflation-adjusted terms (i.e., in ‘today’s pounds’), a horizontal line represents pensions accrual (dashed line) or annual pensions in payment (circles, diamonds, or squares) which are revalued to precisely match the rate of CPI inflation. A downwardly sloping line represents pensions accrual or payments which fail to keep up with inflation, whereas an upwardly sloping line represents accrual or payments which increase at a greater rate than inflation.

The steeply upwardly sloping green line during the subsequent career of a 40-year-old TPS member (who remains in the scheme until retirement) represents the revaluation of their accrual at a rate of CPI plus 1.6% per annum up until point of retirement. On account of increments and promotions, a teacher’s final salary is expected to exceed their salary in earlier years by more than the rate of inflation. Hence, revaluation 1.6% in excess of inflation is a means of compensating for the de-linking of the TPS pension promise from final salary and the move in 2015 to a career average (CARE) scheme.

By contrast, when USS switched from 1/80th final salary to 1/80th CARE for new members in 2011, there was no above-inflation revaluation to compensate for the severing of the link to final salary. On account of this lack of compensation, it was estimated that this shift to CARE reduced the average members future accrual to about 75% of the value of the 1/80th final salary promise.

Educateeer

Compare the green and yellow lines to see my concern....

atw_uss

I'm no expert, but the impression I have from having paid into both is that TP is a far superior DB pension compared to USS. Both schemes have changed a lot over the years, but as a public sector one, TP is about as secure as it gets. Transferring into USS has also changed (something to do with the 'Pension Club', I think), and I very much doubt it'd confer any advantages.

USS has had its benefits steadily eroded, as you demonstrate in the chart, and there has been a lot of industrial action because of it. The saving grace for me has been having paid into AVCs while a teacher which are now able to buy me some more USS pension at an acceptable rate. Difficult to know what to do, but there are a few on here in USS who might be able to comment more.

zagubov

I'm in the TPS scheme and my better half's in the USS. 
I don't think she'd recommend it to anyone and if I were you I wouldn't be transferring your TP into the USS
I find the TPS to be excellent.
Others in the USS might give you better advice.

Universidad

There is a reasonable suggestion that some of the USS benefits will be restored following the next valuation. If that happens... it will still be worse than TPS. As it stands now the scheme has got almost nothing on TPS.

That chart that shows you earning double the pension on the same salary is more or less totally right.

Just for starters inflation protection on your TPS benefits is CPI + 1.6%.

Inflation protection on USS is up to a stellar 2.5% CPI, and above that enjoy your hard earned pension being devalued.

You say that "my financial priority is my pension". In which case, TPS is the better pension. Don't go to a USS institution if your priority is a good pension. 

In my experience, the salary supression we've seen over the last 15 years is worse in post-92s than pre-92s. So if you wanted a better salary eventually, it might be worth moving. And Pre-92s tend to have more prestige, and that can be important for some people.

But you say the priority is the pension, in which case look no further, you have hit the jackpot.

I literally have no idea how these fancy schmancy Russel Group Unis think they will be able to trade on reputation alone, when their pension scheme is half as good as a solid red brick poly, but there it is.

They were only too keen to cite market force when making cuts. I let them see what market forces actually look like and walked.

I strongly recommend you don't replace me - the only thing I can tell you for sure is that you'll be working for less.

ussdave

As someone who is an active member of USS I entirely agree with Unviersidad's post above.

Personally I'm in a position where moving to a post-92 would mean accepting a fairly significant salary cut.  That, combined with the carrot dangled of potentially restoring benefits has held off my move for now....but even if the benefits are restored I will continue to seriously consider moving to an employer offering one of the gold-plated public sector pensions in the future.  The accrual rate and inflation protection is simply light years ahead.

One small point I would highlight is that the graphic you've provided quotes a salary that is at roughly the threshold where you're earning the accrual cap for USS retirement income benefits.  Beyond that cap you will not accrue additional DB benefits but you do get a fairly decent DC amount.  Combine this with salary sacrifice and the ability to link the DC pot TFLS to your DB benefits and the tax advantages are very generous for higher earners.  I'd still massively prefer a better DB pension but if your goal is to build a large TFLS then it's a solid choice.  I know you can do similar with LGPS but I don't believe (but could be wrong) you can do so with TPS, Alpha or the NHS pension scheme.

Educateeer

Some great advice so far from everyone - thanks very much.  So, with the focus on pensions, it looks like I'd be taking a financial hit from moving to a more respected and better-paying institution!  I'm so glad I checked this out, it's only the industrial action that made me check - in the past I'd rather assumed the two schemes weren't so different. The job itself looks really interesting, so now I need to think if it's worth taking a financial hit.

Educateeer

ussdave said:

As someone who is an active member of USS I entirely agree with Unviersidad's post above.

Personally I'm in a position where moving to a post-92 would mean accepting a fairly significant salary cut.  That, combined with the carrot dangled of potentially restoring benefits has held off my move for now....but even if the benefits are restored I will continue to seriously consider moving to an employer offering one of the gold-plated public sector pensions in the future.  The accrual rate and inflation protection is simply light years ahead.

One small point I would highlight is that the graphic you've provided quotes a salary that is at roughly the threshold where you're earning the accrual cap for USS retirement income benefits.  Beyond that cap you will not accrue additional DB benefits but you do get a fairly decent DC amount.  Combine this with salary sacrifice and the ability to link the DC pot TFLS to your DB benefits and the tax advantages are very generous for higher earners.  I'd still massively prefer a better DB pension but if your goal is to build a large TFLS then it's a solid choice.  I know you can do similar with LGPS but I don't believe (but could be wrong) you can do so with TPS, Alpha or the NHS pension scheme.

@USSdave - thanks. I am I right in thinking that the (USS) employer would usually still contribute to the DC part of the pension, as they would to the DA part.? TFLS is not a goal of mine to be honest, but I guess that's something. When you say earners do you have a figure in mind - I'm probably not going to get much higher than the low/mid-60s; currently on low 50s.

Educateeer

Universidad said:

There is a reasonable suggestion that some of the USS benefits will be restored following the next valuation. If that happens... it will still be worse than TPS. As it stands now the scheme has got almost nothing on TPS.

That chart that shows you earning double the pension on the same salary is more or less totally right.

Just for starters inflation protection on your TPS benefits is CPI + 1.6%.

Inflation protection on USS is up to a stellar 2.5% CPI, and above that enjoy your hard earned pension being devalued.

You say that "my financial priority is my pension". In which case, TPS is the better pension. Don't go to a USS institution if your priority is a good pension. 

In my experience, the salary supression we've seen over the last 15 years is worse in post-92s than pre-92s. So if you wanted a better salary eventually, it might be worth moving. And Pre-92s tend to have more prestige, and that can be important for some people.

But you say the priority is the pension, in which case look no further, you have hit the jackpot.

I literally have no idea how these fancy schmancy Russel Group Unis think they will be able to trade on reputation alone, when their pension scheme is half as good as a solid red brick poly, but there it is.

They were only too keen to cite market force when making cuts. I let them see what market forces actually look like and walked.

I strongly recommend you don't replace me - the only thing I can tell you for sure is that you'll be working for less.

Some clear advice - thanks!

ussdave

Educateeer said:

ussdave said:

As someone who is an active member of USS I entirely agree with Unviersidad's post above.

Personally I'm in a position where moving to a post-92 would mean accepting a fairly significant salary cut.  That, combined with the carrot dangled of potentially restoring benefits has held off my move for now....but even if the benefits are restored I will continue to seriously consider moving to an employer offering one of the gold-plated public sector pensions in the future.  The accrual rate and inflation protection is simply light years ahead.

One small point I would highlight is that the graphic you've provided quotes a salary that is at roughly the threshold where you're earning the accrual cap for USS retirement income benefits.  Beyond that cap you will not accrue additional DB benefits but you do get a fairly decent DC amount.  Combine this with salary sacrifice and the ability to link the DC pot TFLS to your DB benefits and the tax advantages are very generous for higher earners.  I'd still massively prefer a better DB pension but if your goal is to build a large TFLS then it's a solid choice.  I know you can do similar with LGPS but I don't believe (but could be wrong) you can do so with TPS, Alpha or the NHS pension scheme.

@USSdave - thanks. I am I right in thinking that the (USS) employer would usually still contribute to the DC part of the pension, as they would to the DA part.? TFLS is not a goal of mine to be honest, but I guess that's something. When you say earners do you have a figure in mind - I'm probably not going to get much higher than the low/mid-60s; currently on low 50s.

Hi.  Yes, that's correct.  From the guide:

When your salary exceeds the salary threshold in any year, 12% of your employer’s contribution and 8% of your contribution in respect of salary above the threshold will go into your Investment Builder pot. This means you’ll build both Retirement Income Builder benefits (the defined benefit part) and Investment Builder savings (the defined contribution part), giving you a hybrid pension and the best of both worlds. It’s also worth knowing that a small portion of your overall contributions are used to cover the costs of running the Retirement Income Builder. Remember, you’ll earn a regular pension income and cash lump sum based on your salary below the threshold in the Retirement Income Builder alongside this.

In terms of earnings figures I suppose I meant anything above the threshold, but especially if you are earning enough to still be paying 40% tax on some of your earnings after paying the standard 9.8% USS pension contribution (which is around the £57,000 mark I believe).  The tax saving isn't really just a USS thing as it's true of other salary sacrifice schemes, but the additional ability USS confers to save 42% on your contributions and then get most of it out tax free (due to the DC and DB linkage) is a nice perk.  You're essentially doubling your money (within limits).

FIREmenow

Also worth checking if the new institution uses salary sacrifice for the 9.8% and any extra contributions you make, as not all do. The NI saving might further tip the scales one way or the other. 

I'm in USS and would say stay where you are!