USS pension to be restored - will my estimated pension go up?

Gaura23

Does the current estimate of the pension I will receive in the 'Retirement Income Builder' in 'My USS' show the amount calculated after the cuts due to the pandemic valuation? Will it go up after the new valuation (due to finish June 2024)? I think this is what is implied by the UCU statement below, but am I interpreting it correctly? 

'Today, a consultation launched by the USS Trustee shows that the scheme is on track for full restoration of pension benefits by April 2024, which follows cuts that were imposed on staff in April 2022. Figures included in the consultation demonstrate that [...] pensions cuts - which saw members lose on average 35% from their guaranteed retirement income - be restored'

(UCU, 9 July 2023)

MPLMPL

Pasted below is the summary of proposed changes from USS (received in an email from my Uni's pensions team).

My reading of it is that accrual rate and salary threshold won't be backdated to 1/75 (will revert to this from pension accrued after 1st April 2024). Don't see how they could backdate, as contributions above threshold have gone into investment builder (DC part). Don't think they will backdate 1/85 to 1/75.

What I do read is that the cap on increases to pension accrued since April 2022 will go back up from 2.5% to the original method. From memory, we were to get the standard increases from April 2022 to April 2024 (i.e. CPI up to 5% then half of anything above that to max of 10% increase) BUT from April 2024 onwards the revaluation of anything accrued post-2022 was then to be increased by CPI capped at 2.5%. I'd take this to mean we'll see no change to our current accrued Retirement Income Builder, but will be back to the better annual increase in April of each year i.e. from April 2024 onwards. Plus if still contributing to the scheme, then a better accrual rate, higher salary threshold and lower employee and employer contribution rates.

I'm happy to be corrected.

Summary of the JNC’s proposed changes

The JNC has proposed improvements to your benefits. The changes would see the pre-April 2022 benefit structure re-introduced with effect from 1 April 2024. The JNC has proposed the following:

1. Salary threshold increase

 It is proposed that the salary threshold will increase from the current level of £41,004 to within the range of £66,400 to £73,040 with effect from 1 April 2024 (the threshold applied will be determined by the annual rate of CPI inflation to September 2023).

The salary threshold would continue to be increased annually in line with inflation (subject to a cap) and it is proposed that the cap increases from 2.5% to a maximum of 10% for benefits built up from 1 April 2022, with the increases applying as follows:

• Where inflation (currently CPI) is 5% or less, the increase would be matched.

• Where CPI is more than 5% but less than 15%, the increase would be 5% plus half of the percentage increase over 5%.

• Where CPI is 15% or more, the increase applied would be 10%.

 2. A higher accrual rate for your defined benefits

It is proposed that the rate at which you build benefits in the defined benefit part of the scheme, the USS Retirement Income Builder, will increase as follows:

• Currently, you get 1/85 of salary (up to the salary threshold) in defined benefit pension each year and 3/85 as a lump sum on retirement. 

• It is proposed to increase this to 1/75 pension and a 3/75 lump sum respectively. 

3. Higher cap for future pension increases 

It is proposed that the cap on increases to benefits built up from 1 April 2022 goes up from 2.5% to a maximum of 10% (before and after retirement) to take into account inflation. This increase will be capped as follows: 

• Where inflation (currently CPI) is 5% or less, the increase would be matched. 

• Where CPI is more than 5% but less than 15%, the increase would be 5% plus half of the percentage increase over 5%. 

• Where CPI is 15% or more, the increase applied would be 10%.

Universidad

For the next 70 years or more there will be academic and professional staff, in work or in retirement, with this "low benefit" two year blip in their pension statements. 

I'm not saying that the constant changes to USS make the scheme look bad, but it's hard to argue that you can expect stability in retirement if your pension statements shows "the pre-2011 scheme", "the pre-2016 scheme", "the pre-2022 scheme", "the 2022-2024 scheme", "the 2024 scheme" onwards... 

It's not a good look.

hyubh

Universidad said:

I'm not saying that the constant changes to USS make the scheme look bad, but it's hard to argue that you can expect stability in retirement if your pension statements shows "the pre-2011 scheme", "the pre-2016 scheme", "the pre-2022 scheme", "the 2022-2024 scheme", "the 2024 scheme" onwards... 

It's not a good look.

You're not saying it makes the scheme 'look bad', but you are saying it is 'not a good look'

That said - given a DB pension involving different tranches is quite a common phenomenon, it's probably not worth work taking offence at...

Universidad

hyubh said:

You're not saying it makes the scheme 'look bad', but you are saying it is 'not a good look'

That leaves some salvageable middle ground... Maybe.

hyubh said:

That said - given a DB pension involving different tranches is quite a common phenomenon, it's probably not worth work taking offence at...

It's not so much offensive as embarrasing. I feel like if you've been in the same role for 13 years but your pension scheme has been through 6 different incarnations in that time, it might be reasonable to worry about how you can be expected to plan for retirement.

That said, I remain offended at how some of the changes were put through.

Gaura23

Thank you for the detailed answer - just to check that I have understood: in 2025, my Retirement Income Builder should show a higher predicted annual pension than it does now because it will be back up to 1/75 - is that correct?

Doctor_Who

Gaura23 said:

Thank you for the detailed answer - just to check that I have understood: in 2025, my Retirement Income Builder should show a higher predicted annual pension than it does now because it will be back up to 1/75 - is that correct?

Since 2016 USS has been a career average scheme, not a final salary scheme. The 1/85 or 1/75 applies to each year you are a member. So at present the income builder accrues at 1/85 (upto the salary threshold) and from April 2024 it is proposed to accrue at 1/75 (upto the new proposed salary threshold). So from April 2024 your income builder should increase by more each year than it does now, but the 1/75 and new salary threshold won't apply to the years already accrued.

Gaura23

Got it! Thank you!

swindiff

The latest statement implies that the reduced years will actually be restored to what they should have been before the reductions were applied.

A £900 million top-up to Universities Superannuation Scheme pensions is set to reimburse members for money they lost between April 2022 – when benefits were cut – and April 2024 – when they are set to be restored.

MPLMPL

Joint statement from UCU and employers suggests this is a one off payment of £215 to DB rather than fully restored. Would like to know which year's annual allowance this will contribute to? Will take me over with no carry forward if applied to 22/23.
"Subject to appropriate consultation processes by both UCU and UUK, we jointly propose that a one-off DB pension augmentation of £215 will be applied for all eligible members2, with an associated £645 retirement lump sum for active and deferred members. Pensioner members should receive an additional DB pension augmentation of £26, due to HMRC regulations concerning the payment of tax-free lump sums at retirement. These augmentation proposals will be effective as at 1 April 2024 and will be implemented as soon as possible thereafter." 

MPLMPL

For those who haven't seen it, full joint statement from UCU and UUK pasted below.

A Joint Statement on UUK and UCU collaboration towards scheme stability, USS benefit improvements and reduced contribution rates This statement is agreed by both UCU & UUK subject to completion of their own consultation processes. UCU and UUK have been building on the work set out in the joint statements issued on 17 February, 15 March and 25 May 2023 to jointly prioritise the improvement of benefits to pre-April 2022 levels, where this can be done in a demonstrably sustainable manner. We want to provide an update on this work. Demonstrably sustainable UCU and UUK have been working with the USS Trustee to consider sustainability through a joint Stability Working Group.  The contributions threshold modelling produced by the USS Trustee, which has been published in the Trustee’s Technical Provisions consultation documents, provides evidence that improving benefits to preApril 2022 levels is demonstrably sustainable for at least the next two valuation cycles when the bulk of the surplus, as at March 2023, is retained for this valuation. Benefit Improvement Subject to the outcome of the 2023 valuation process and consultations, we agree to recommend that member benefits return to pre-April 2022 levels, for service from 01 April 2024. In summary: 
A higher accrual rate for Defined Benefit (DB) pension of 1/75 of salary and 3/75 of salary for the retirement lump sum.
An increase in the DB Salary Threshold from £41,004 to within a range of £66,400 to £73,040 (depending on the September 2023 CPI rate); and
Removal of the 2.5% pa cap on pension increases, both before and after retirement, and replacement with the USS standard pension increase (softcap) that was in place before April 2022 [1]. A consultation of affected employees and their representatives on the proposed benefit changes was launched on 25 September 2023 and is due to end on 24 November 2023 (www.ussconsultation2023.co.uk). Contribution Rates For this valuation, UCU and UUK agree to apply the ‘cost-share’ rule for the reduction in the contribution rate confirmed by the Trustee for pre-April 2022 benefits. The expected required contribution rate is 20.6%. The split in reduction between employers and members, in accordance with the ratio 65:35 stated in the scheme rules, is expected to result in contribution rates of 14.5% and 6.1% respectively. We agree to make a formal request to the USS Trustee that the new required contribution rate is implemented for employers and members from  1 January 2024. Benefit Augmentation In recognition of the significant improvement in the scheme’s reported funding position, and given the lower scheme benefits from April 2022, UCU and UUK have been exploring options and costs for augmenting benefits accrued between 1 April 2022 and 31 March 2024. We agree that a one-off defined benefit (DB) pension augmentation should be given to scheme members [2] with any service between 1 April 2022 and 31 March 2024. This pension will be increased each year in line with the USS standard pension increase (soft-cap), and will include the associated retirement lump sum and dependants’ benefits. Subject to appropriate consultation processes by both UCU and UUK, we jointly propose that a one-off DB pension augmentation of £215 will be applied for all eligible members2, with an associated £645 retirement lump sum for active and deferred members. Pensioner members should receive an additional DB pension augmentation of £26, due to HMRC regulations concerning the payment of tax-free lump sums at retirement. These augmentation proposals will be effective as at 1 April 2024 and will be implemented as soon as possible thereafter.  Future Stability Both UCU & UUK are committed to continuing to work together to ensure the stability of benefits and contributions at future valuations. This will include working to achieve a moderately prudent evidence-based valuation as a driver of stability in time for the next valuation, as well as investigating other approaches to ensure ongoing stability, such as an optimal investment strategy for an open, immature, and long-term scheme such as USS.  We reiterate our shared agreement to enhancing scheme governance. We will jointly explore options to make mutually acceptable adjustments to scheme design to further enhance stability of the scheme whilst retaining a predominantly defined benefit scheme. 
[1] All defined benefits accrued between April 22 and April24, existing or additional, will also be indexed at this rate, as will the defined benefit salary threshold.
 [2] A member who was active at any time during the period 01 April 2022 and 31 March 2024. 
 Signed …………………………………….                        UCU                                                                   ……………………………………..  UUK