USS or Civil Service Alpha?

NewWorldTempo

Hi all,
Currently looking at a role which offers a USS pension. I am currently a civil servant and pay into the Alpha scheme. In the past, I was under the assumption that USS was a very good pension but, reading into it, it doesn't look all that great compared to the Alpha scheme.

I believe USS has a contribution rate of 6.1%, while Alpha is 5.45%. The accrual rate for Alpha is 2.32% of your salary and the USS is roughly 1.33% (1/75th of your salary). 

I realise there will be other details to consider such as death benefits for spouse etc but, on the basics, am I missing something?

Thanks! 

ussdave

Alpha is significantly better.  There may be other factors to consider of course.

Andy_L

NewWorldTempo said:

Hi all,
Currently looking at a role which offers a USS pension. I am currently a civil servant and pay into the Alpha scheme. In the past, I was under the assumption that USS was a very good pension but, reading into it, it doesn't look all that great compared to the Alpha scheme.

I believe USS has a contribution rate of 6.1%, while Alpha is 5.45%. The accrual rate for Alpha is 2.32% of your salary and the USS is roughly 1.33% (1/75th of your salary). 

I realise there will be other details to consider such as death benefits for spouse etc but, on the basics, am I missing something?

Thanks! 

It used to be but has got progressively worse over the years. 

NewWorldTempo

Thanks for the comments. It's quite a difference it seems. Such a shame, as I recall colleagues talking about USS as a real gold standard of pensions. 

incus432

USS is in a mess, totally mismanaged. I was able to transfer my service into the NHS in 2010 and so glad I did.  Best avoided if you can

Universidad

NewWorldTempo said:

Thanks for the comments. It's quite a difference it seems. Such a shame, as I recall colleagues talking about USS as a real gold standard of pensions. 

It's very hard to find a better private pension scheme than USS - at least, it's hard to find one that is open. That much I will say in their defence.

I left the sector in 2022 after the pension was cut to 1/85 with a 2.5% hard cap on inflation. This was evidently a cut too far as these cuts were reverted in 2024. Too late for myself and many others, though - I can't imagine going back, now.

Anyway, in a roundabout way of answering your question I literally quit my career of 20 years to get into Alpha instead of USS, and I would do it again in a heartbeat.

Lots of experience reading the board have highlighted a number of advantages that USS has - such as a better way of managing the retirement age - but none come close to filling in the gap induced by close to twice the accrual rate.

Don't live your whole life for your pension, if the job will be fulfilling consider whether it is worth the sacrifice. But be under no illusions, it is a sacrifice, and not a small one.

Barralad77

I’m not familiar with the Alpha scheme, only USS, but one of the things I do like about USS is the Investment Builder (effectively, a DC pension pot but one that can be viewed purely as a means of building up cash if preferred). This is coupled to the ability - at my institution - to put money into the IB via a Salary Sacrifice scheme which brings tax/NI relief benefits. To give an indicator, I can put £2,500 each month into the IB and because it’s done via SS the net cost to me is only £1,500 (roughly). That’s a grand going into my investment pots rather than to the taxman etc., and when I come to take it out I get 25% of the fund value tax-free (and, in my case, will pay 20% tax on the remainder, resulting in an effective tax rate of only 15%). Even assuming zero growth in the investment funds, that works out at £2,125 for a cost of £1,500. Something similar may be available in Alpha? There’s also the 3 x annuity tax-free lump sum with USS (again, not sure whether something similar applies to Alpha).

amandaleeds

NewWorldTempo said:

Hi all,
Currently looking at a role which offers a USS pension. I am currently a civil servant and pay into the Alpha scheme. In the past, I was under the assumption that USS was a very good pension but, reading into it, it doesn't look all that great compared to the Alpha scheme.

I believe USS has a contribution rate of 6.1%, while Alpha is 5.45%. The accrual rate for Alpha is 2.32% of your salary and the USS is roughly 1.33% (1/75th of your salary). 

I realise there will be other details to consider such as death benefits for spouse etc but, on the basics, am I missing something?

Thanks! 

How is the 28% employer contribution included if the pension just increases by 2.32% of salary each year? Is USS a worse accrual rate due to the lower employer contributions despite employee contributions being 3 x that of the alpha scheme?

hugheskevi

amandaleeds said:

NewWorldTempo said:

Hi all,
Currently looking at a role which offers a USS pension. I am currently a civil servant and pay into the Alpha scheme. In the past, I was under the assumption that USS was a very good pension but, reading into it, it doesn't look all that great compared to the Alpha scheme.

I believe USS has a contribution rate of 6.1%, while Alpha is 5.45%. The accrual rate for Alpha is 2.32% of your salary and the USS is roughly 1.33% (1/75th of your salary). 

I realise there will be other details to consider such as death benefits for spouse etc but, on the basics, am I missing something?

Thanks! 

How is the 28% employer contribution included if the pension just increases by 2.32% of salary each year? Is USS a worse accrual rate due to the lower employer contributions despite employee contributions being 3 x that of the alpha scheme?

Ignore employer contributions. The USS contribution rate and the alpha contribution rate are set using completely different discount rates, and that drives enormous differences. Second, contribution rates include past service deficit, which is of no relevance for new accrual.

Focus on the benefits being accrued and the key features:

• Accrual: alpha: 2.32% of pensionable earnings. USS: 1.33% of pensionable earnings
• <edited to add> Lump  sum: alpha, none, USS 3 times pension
• Revaluation of accrued benefits: alpha is uncapped CPI, can be negative if deflation. USS is CPI, cannot be negative, but only 50% revaluation awarded above 5% inflation, and nothing above 15% inflation.
• Indexation - alpha is uncapped CPI and cannot be negative, USS is same as revaluation
• Member contribution - alpha is 4.6% to 7.35% for most members, USS is 6.1%
• Salary cap - alpha has no cap on pensionable earnings, USS is £71,484 for the DB section (above which 20% contribution to a DC pension applies)

So alpha is significantly better than USS.

If you want to estimate the capital value of the difference, you can look at the CETV value of the difference in pension accrual at your salary level using the Civil Service pension actuarial factors - it won't be exactly right for many reasons, but as a ballpark estimate it will be okay.

Dazed_and_C0nfused

amandaleeds said:

NewWorldTempo said:

Hi all,
Currently looking at a role which offers a USS pension. I am currently a civil servant and pay into the Alpha scheme. In the past, I was under the assumption that USS was a very good pension but, reading into it, it doesn't look all that great compared to the Alpha scheme.

I believe USS has a contribution rate of 6.1%, while Alpha is 5.45%. The accrual rate for Alpha is 2.32% of your salary and the USS is roughly 1.33% (1/75th of your salary). 

I realise there will be other details to consider such as death benefits for spouse etc but, on the basics, am I missing something?

Thanks! 

How is the 28% employer contribution included if the pension just increases by 2.32% of salary each year? Is USS a worse accrual rate due to the lower employer contributions despite employee contributions being 3 x that of the alpha scheme?

With a normal DB scheme the employer contribution isn't a factor in the pension you accrued.

You receive whatever the scheme rules say.  Which for Alpha is 2.32%.

And 2.32% seems to be a relatively good rate for the basic accrual.  NHS is 1.85%, although it has better in service revaluation.  LGPS is 2.04% and TPS 1.75%, although you can pay more to improve that.

Universidad

amandaleeds said:

How is the 28% employer contribution included if the pension just increases by 2.32% of salary each year? 

That's the neat part - it isn't. The employer (and indeed employee) contributions are just what USS deem necessary to keep the scheme running as it stands. Your pension is not a pot of money. The (huge, multibillion pound) "pot of money" that exists is what the scheme invests in order to meet liabilities. 

You get the pension you have accrued no matter how their investments perform. Once it's accrued, it's one of the safest pensions out there. They take the risk so that you don't have to. 

Occasionally they run some dubious maths that imagines up a deficit, and cut future benefits on that basis. (OK, that last part is flippant, but it is also why I left the sector.)