USS - Increase lump sum or not?

Grant1968

cupofassam said:

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.

This is really useful background. And whilst I am not totally convinced that the two (better benefits, worse ERFs) are not linked somewhere, what confuses me most is the lack of comms around this. Leaving aside USS for a moment, who obviously have a case to answer, it now seems that the union did know about the changes to ERFs. I appreciate that you are probably not involved in union comms, but do you know why none of this has been communicated to members?

swindiff

swindiff said:

Email from USS

I refer to your recent emails which have been forwarded from your employer regarding the new Benefit Calculator.

I can confirm that we were aware of an issue with the modeller which meant it was providing incorrect results. This was due to the factors regarding early retirement which had been programmed into the calculator.

 As of 18th January, a fix has been completed on the modeller and so, the results from this date should now be accurate.

 Please accept my apologies for the discrepancies. If you require any further information, please do not hesitate to contact us.

My Response

Thanks for your reply.  

The figure for 60Y and 0M still does not look right.  I would expect the biggest increase to be between 59Y 11M and 60Y 0M.  As 60 is the age at which I can retire without actuarial reduction being applied to much of my older pension.  The figures imply that actuarial reduction is still being applied to all my pension at 60, and then being removed at 60Y 1M?

As has been said it will all change again from April so not that bothered, and would obviously work to 60y 1M if I had to, but it still does not seem correct to me.

Latest response from USS with regards to this

Dear Mr ******

Thank you for providing screenshots of your various benefit projections produced using the benefit calculator.

I believe that the jump in benefits at 60y1m may be to do with employer consent assumptions that should be kicking in at age 60y0m, however it will take us some time to determine whether this is the case.

Please bear with us while we look into this issue for you.

ussdave

Got a response from my local UCU rep which may be of interest:

We have just become aware of this and I have already issued a query to USS seeking a meeting. We appreciate that these factors can be reviewed but we are seeking an explanation as to how a valuation in 2023 with £7bn surplus leads to worsening scheme factors. We have also raised queries on Communications both with us and JNC as well as with members.

 

I will try and get a note issued to officials and pension officers on actions being taken and will correspond further once we get a meeting with USS.

bluenose1

Thanks for the update ussdave.
i have been in touch with USS  today to ask can I take my pension from beginning of Feb 24 rather than have the much reduced ERF from April 24.
The quote I have previously received to take my pension from April 24 is based on current ERF rates so not correct.
Not sure if USS are advising members who now have incorrect quotes or it will be a nasty shock when they get their payments.

Simes122

Grant1968 said:

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.

Are you reading that right? It’s gone from 25 down to 19.9?  I might have got these back to front!  

Grant1968

MPLMPL said:

I think you can use the modeller to play with this, see if it works.
Happy to be corrected!

I'm not sure the modeller is up to date with the new commutation factors.

Grant1968

bluenose1 said:

Thanks for the update ussdave.
i have been in touch with USS  today to ask can I take my pension from beginning of Feb 24 rather than have the much reduced ERF from April 24.
The quote I have previously received to take my pension from April 24 is based on current ERF rates so not correct.
Not sure if USS are advising members who now have incorrect quotes or it will be a nasty shock when they get their payments.

Did the really tell you that the official, hardcopy quote (not online modeller) was using the wrong rates? Just when you thought things could not get any worse....

Grant1968

Simes122 said:

Grant1968 said:

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.

Are you reading that right? It’s gone from 25 down to 19.9?  I might have got these back to front!  

I think the figures you quote are for RB to LS, whereas I was talking about LS to RB. I think this is my bad, as what I called commutation (LS to RB) is actually termed reverse commutation. Hopefully that is right. Sorry for any confusion. 

bluenose1

Grant1968 said:

bluenose1 said:

Thanks for the update ussdave.
i have been in touch with USS  today to ask can I take my pension from beginning of Feb 24 rather than have the much reduced ERF from April 24.
The quote I have previously received to take my pension from April 24 is based on current ERF rates so not correct.
Not sure if USS are advising members who now have incorrect quotes or it will be a nasty shock when they get their payments.

Did the really tell you that the official, hardcopy quote (not online modeller) was using the wrong rates? Just when you thought things could not get any worse....

The quote I received was sent about a month ago so wouldn’t have included the new ERF rates.
I just want to get mine in payment asap now as have already retired and was only holding out for the increased lump sum due to the  £215 x3 and cost of living rise.
At least I can take it now and not have the ERFs reduced, so luckier than most.

Grant1968

bluenose1 said:

Grant1968 said:

bluenose1 said:

Thanks for the update ussdave.
i have been in touch with USS  today to ask can I take my pension from beginning of Feb 24 rather than have the much reduced ERF from April 24.
The quote I have previously received to take my pension from April 24 is based on current ERF rates so not correct.
Not sure if USS are advising members who now have incorrect quotes or it will be a nasty shock when they get their payments.

Did the really tell you that the official, hardcopy quote (not online modeller) was using the wrong rates? Just when you thought things could not get any worse....

The quote I received was sent about a month ago so wouldn’t have included the new ERF rates.
I just want to get mine in payment asap now as have already retired and was only holding out for the increased lump sum due to the  £215 x3 and cost of living rise.
At least I can take it now and not have the ERFs reduced, so luckier than most.

Got my quote today. Asked for latest date they would give me (12 months hence), to see how this will all play out. Looks like with these changes, my annual pension and lump sum will be reduced by 10%; the headline ERFs have not changed by that much for me, but obviously if the old ERF was 74% and the new one is 67%, that is a 10% drop in multiplier (67/74=0.9). 

The new reverse commutation factors are better, but even applying these to all of my lump sum still leaves me with a 7% deficit.

Forgetting about what I could reasonably expect from all the comms sent out, my annual pension and lump sum taken in 12 months will still actually be 3.5% less than if today, despite paying in for 1 more year and being 1 year older. What was that about getting more out the longer you pay in?