USS - Increase lump sum or not?

NickBFS

MPLMPL said:

Incidentally, unless I've misinterpreted, the reverse commutation appears to be more favourable for converting Retirement Income Builder lump sum into pension?

and conversely the commutation factors for the opposite conversion from RB pension into lump sum have become much less attractive:

Grant1968

Change to all commutation factors seem very significant, both in scale and (opposite) direction. I am no actuary. however it seems clear they are trying to encourage people to swap LS for RB, and a LS-RB factor of 25ish at 55yo compares very favourably to any currently available, similarly indexed annuity. I am not sure whether this is to prevent "large withdrawals" via standard or commutated-enhanced lump sums (cash flow worries??), or as a bit of a defence when this all comes to light, along the lines of "Yes, your early-taken pension will be reduced, but you get better commutation rates". Of course that would all hold a little more water if it wasn't for the (quite significant) detail that the amount of LS you have to commutate to RB is a function of the original RB itself, so any gain with a better rate is partially wiped out by applying that factor to a lesser amount. Smoke and mirrors doesn't even come close.

bluenose1

I think this may make a difference of approx 7% for me annually as taking my pension from 58.
i was going to take my pension from 1st April 24 to get the benefit of the increased lump sum due to cost of living rise and £215 x 3  award.
Looks now like I should take my DB pension asap.
I rang USS today for an up to date quote.

Thanks @grant1968 and @PJM_62 for alerting us, cant believe this hasn’t been publicised, well unfortunately I can. 

bluebirdy

Wondering if those of us who are UCU members should be raising this with our branches to campaign on? After all presumably although mostly agreed, the April 2024 changes haven’t been finally approved?

If anyone is able to set out a clear list of differences/actual numbers that would help me a lot (because I’m a bit of a newbie on understanding pensions)?

bluebirdy

And can I check I am understanding this correctly:

So my pension up to 2011 has a contracted pension age of 60, so if I were to retire before 60, that pre 2011 would also be subject to new/any ERFs, but not if I retire at/after 60?

And *ALL* of the post 2011 pension is likely to be affected by the ERFs unless I retire at NRA?

Did I dream it or are some bits between 2011-2016 subject to NPA of 63.5?

Grant1968

tbh, i am still a little unclear about the detail, suffice to say that 2 calls to USS have resulted in confirmation of what the website says, i.e. new factors apply across all years. I have asked our union branch to investigate and they are in touch with head office; if I hear anything, I will post it here, though if true I would hope the union would be in touch quicker.

wrt the wider changes that were consulted on and been agreed, I believe these changes fall outwith those. None of the upbeat emails or fluffy animations say anything about these changes, and the only mention of them is the updated figures themselves. As well as not being a qualified actuary, I am also not a qualified lawyer, but I would hazard a guess (hope!) that, even if these changes are illegal, the fact that they have not been communicated in any way would at least delay their application.

PJM_62

Not a union member myself but appreciate anything those that are can do, to get this looked into and delayed,  to give breathing and thinking space those of us planning on retiring or flexi retiring in the coming months.

bluenose1

Grant1968 said:

tbh, i am still a little unclear about the detail, suffice to say that 2 calls to USS have resulted in confirmation of what the website says, i.e. new factors apply across all years. I have asked our union branch to investigate and they are in touch with head office; if I hear anything, I will post it here, though if true I would hope the union would be in touch quicker.

wrt the wider changes that were consulted on and been agreed, I believe these changes fall outwith those. None of the upbeat emails or fluffy animations say anything about these changes, and the only mention of them is the updated figures themselves. As well as not being a qualified actuary, I am also not a qualified lawyer, but I would hazard a guess (hope!) that, even if these changes are illegal, the fact that they have not been communicated in any way would at least delay their application.

I was not in UCU but Unite so don’t think my TU would be much help as UCU seems to be the main TU for the USS pension. 

It does seem strange that these changes to ERFs and commutation values have not been communicated at all.
Don’t think the calculators have been updated as still showing my original figures when I do the projections again,

ussdave

Extremely disappointing and will also likely trigger a replan for me I think (though they could easily change yet again before I can retire).

I'll mention this to my branch UCU reps too, though I don't hold out much hope of this being reversed.  I don't think it's as easy to understand to a lot of members as a reduction in benefits at the NPA.  On top of that, I feel UCU are keeping a bit of a lower profile as the membership is tired from the years of strikes and assessment boycotts.  Obviously I wish neither of these things were true.

cupofassam

I am one of the elected negotiators on the USS's committee that in effect sets the contribution and benefit rates. We were unhappy with this change which was something we have ben told we could not affect. It is not a consequence of or part of the negotiated settlement to restore benefits to 2022 levels. We argue that because it is a retrospective global change to all earned benefits, it is something we should agree and look into. The picture is complicated. All benefits earned up to 2011 have a  NPA of 60; everything to 2022 of 65, everything thereafter 66 (though that will change for post-2011, as can be seen). So, as someone comments above, if you retire 'early' over 60 your pre-2011 benefits are not reduced. In fact, they are increased by the late retirement factors, as I understand it. This may mitigate in some small way for the reduction of benefits earned thereafter, but it's little comfort for those who want to retire before 60.. 

The reason of course for reducing benefits on early retirement is that you will receive them longer, and so to gain a cost-equivalence with those retiring at the NPA, you should get a reduction so that over time in retirement you gain something close to the same net. If that were the only reason, of course then the factors need not change. One argument made is that because you are retiring early, then you are removing money from a fund that needs to keep growing to pay every else's pension. Fair enough - but the USS scheme is now not only in a period of theoretical surplus, but also there are agreements to retain that surplus to some degree. So, with a surplus, you are dipping a very small toe in to that large lake to retire early, not into the fund to pay other pensions. That argument is flawed: why make the reductions worse during a period of surplus than what they were during a period of theoretical deficit. Now, the only reason we can see of this is that they are pegging future growth against the gilt rate, which we have argued is a severely flawed aspect of the valuation methodology. See our paper here: https://medium.com/@marktaylorbatty_59000/uss-volatility-is-anyone-spotting-a-pattern-4ee42f921d1e

So, a flawed aspect of the valuation - which we are seeking to address for future valuations now that the pension has been restored to pre-2022 levels - seems to be causing this drag on the early-retirement factors. That's something we will seek to get to the bottom of.