USS - Effect of Becoming a Deferred Member for a Month

gwt1965

I am currently a member of USS and will be 60 on January 30, 2025 when I hope to retire. My employer is offering a voluntary severance scheme whose final date of employment would be December 31, 2024.

According to the benefits calculator on the USS website, if I remain in the scheme and take my benefits at age 60, the annual pension will be £22,582. If I use the options on the calculator to give a scheme leaving date of December 2024, but still take my benefits at age 60, the pension reduces to £20,488. 

Can anyone explain how one month's scheme membership makes such a big difference? My presumption is that early retirement factors are at work and that leaving the scheme before 60, even if it is only by a month, creates this kind of cliff edge. Or is there some other element that becoming a deferred member introduces?

TIA

BikingBud

As the Early Retirement Factors are based on whole years before SRA they will apply the rate relating to years before NPA, ie at 59 years and 60 years see factors-used-by-uss.

I have never found the calculator accurate or even useful, in fact it now says my case is too complex!

I would, initially try to work out what you feel is correct and then submit a manual request asking for the projections to be broken down, showing the current benefits accrued and how the figures have been revalued so as to set the baseline, and then any ERF and Commutation factors that might be applied for the requested dates.

You may wish to consider if it is worthwhile deferring until NPA, giving cash in hand v more cash downstream see graph for simple illustration: 



At NPA ERFs will not payable but you would need to now how the changes to revaluing affect your baseline:

See a table showing which cap applies and when.

Edit to add:

These lines are based upon recurrent payment from Retirement Builder only and do not reflect any lump sums that might be invested to provide additonal income.

gwt1965

Thanks @BikingBud. Deferring until NPA isn't really an option and I'd struggle to know how to calculate what I feel is correct; I've always been reliant on the USS calculator! But I do think this requires a conversation with USS and the kind of breakdown from them that you suggest. My aim is to try and take advantage of the voluntary severance scheme if I can.

Interestingly, if I slightly alter the dates to take retiring before 60 out of the equation the results are similar. So, if I remain a contributing member of the scheme and take benefits at age 60+2 months (March 2025) the annual pension is £22,787. If I give a scheme leaving date of February 2025, but still take my benefits at age 60+2 months, the pension reduces to £20,779.

ussdave

You may be entitled to take some of your benefits before NPA without reduction - but you lose that protection if you become a deferred member.

I haven't looked at your numbers in detail but it sounds like this could be the issue, or at least part of it.

gwt1965

Thanks @ussdave, that's exactly it. Just spoke to USS. Apparently, the benefits I built up to 30 September 2011, and that have an NPA of 63.5, I can take unreduced if retiring from active service. When I leave active service that protection lapses. Looks like I'll have to try and see if I can persuade my employer to delay any redundancy for a month! 

BikingBud

Oh the complex web that USS has weaved!

swindiff

Maybe ask if they can give you a months sabbatical or unpaid leave before making you redundant.  That way they are not having to pay you for the extra month, but you are still employed when you commence your pension at 60.  My employer has just brought in a scheme allowing you to buy extra leave to try and reduce staffing costs.

katejo

gwt1965 said:

I am currently a member of USS and will be 60 on January 30, 2025 when I hope to retire. My employer is offering a voluntary severance scheme whose final date of employment would be December 31, 2024.

According to the benefits calculator on the USS website, if I remain in the scheme and take my benefits at age 60, the annual pension will be £22,582. If I use the options on the calculator to give a scheme leaving date of December 2024, but still take my benefits at age 60, the pension reduces to £20,488. 

Can anyone explain how one month's scheme membership makes such a big difference? My presumption is that early retirement factors are at work and that leaving the scheme before 60, even if it is only by a month, creates this kind of cliff edge. Or is there some other element that becoming a deferred member introduces?

TIA

Have you got AVCs as part of your pension? I am on SAUL not USS but have been told that the online calculator isn't accurate because of the AVC part. 

gwt1965

swindiff said:

Maybe ask if they can give you a months sabbatical or unpaid leave before making you redundant.  That way they are not having to pay you for the extra month, but you are still employed when you commence your pension at 60.  My employer has just brought in a scheme allowing you to buy extra leave to try and reduce staffing costs.

Good thinking, thanks. Would have to be unpaid leave as we can only buy up to a week's extra leave. Will investigate. 

gwt1965

katejo said:

Have you got AVCs as part of your pension? I am on SAUL not USS but have been told that the online calculator isn't accurate because of the AVC part. 

I have, but they constitute a relatively small amount of my pension and are now wrapped up in the final salary element of the USS retirement income builder. I think the modeller copes with this. Certainly the person I spoke to at USS immediately saw the problem, which is leaving before age 60 and losing actuarial protection for pre-2011 benefits. 

katejo

gwt1965 said:

katejo said:

Have you got AVCs as part of your pension? I am on SAUL not USS but have been told that the online calculator isn't accurate because of the AVC part. 

I have, but they constitute a relatively small amount of my pension and are now wrapped up in the final salary element of the USS retirement income builder. I think the modeller copes with this. Certainly the person I spoke to at USS immediately saw the problem, which is leaving before age 60 and losing actuarial protection for pre-2011 benefits. 

When SAUL stopped the final salary scheme, I was told that the final salary part would be protected as long as I didn't leave before 60.