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Employer consultation 2015

Consultation with affected employees on proposed changes to the Universities Superannuation Scheme

¹ Assumes 5% and 10% indexation slicing as per current rules on post October 2011 service only.

2

The proposed changes – a brief summary

2 March 2015 Consultation on proposed changes to the Universities Superannuation Scheme

KEY FEATURES OF THE PROPOSED SCHEME CHANGES

DB Section

Salary link for past service CPI¹ DB future benefit design CRB DB pension accrual rate 1/75 DB lump sum accrual rate 3/75 DB salary threshold £55,000 Revaluation of salary threshold CPI¹ DB employee contribution rate 8% Active revaluation of CRB benefits, and indexation CPI¹

¹ Assumes 5% and 10% indexation slicing as per current rules on post October 2011 service only.

3

The proposed changes – a brief summary

3 March 2015 Consultation on proposed changes to the Universities Superannuation Scheme

KEY FEATURES OF THE PROPOSED SCHEME CHANGES DC Section Employer DC contributions above threshold 12% Other employer DC contributions Up to 1% match on all salary DC employee contribution rate on salary above the threshold 8% DC investments will be separate from DB and there will be a number of options including a default fund Employers’ contribution commitment 18% The employer contribution rate will be a uniform 18% of salary for all employers, regardless of the take up by employees of the DC matching contribution

• arrangement. A minimum employer contribution of 18% will apply for the next

two valuations, ie up to 31 March 2020.

Current final salary section

4 4

Ending the final salary link

4 March 2015 Consultation on proposed changes to the Universities Superannuation Scheme

Number of years past service Pensionable salary at retirement Pension Accrual rate (1/80th)

X

÷

= £45,000 X 10 years

÷

Accrual rate = £5, 625 a year

5 5

Ending the final salary link

5 March 2015 Consultation on proposed changes to the Universities Superannuation Scheme

Proposed treatment of past service final salary benefits under the new section of the scheme

Number of years past service to implementation date Pensionable salary at proposed implementation date Pension Accrual rate (1/80th)

X

÷

=

USS pension increases until retirement

X

6 6

Impact on CRB members

6 March 2015 Consultation on proposed changes to the Universities Superannuation Scheme

pension benefits earned in each year Pension

X =

USS pension increases until retirement

Current CRB section

Pensionable salary

÷ Accrual rate

(1/80th)

=

£35,000

÷

Accrual rate (1/80th)

= £437 per year X Increases of 2.5% for

10 years (437 x 1.025¹⁰) = £559 per year

7 7

Impact on CRB members

7 March 2015 Consultation on proposed changes to the Universities Superannuation Scheme

Proposed treatment of past service CRB under the new section of the scheme

Past pension benefits earned each year until proposed implementation date Pension USS pension increases until retirement

X =

£437 a year

X Increases of 2.5% for 10

years (437 x 1.025¹⁰) £559 a year

=

8

Proposed new benefit arrangement – new defined benefit section

8 March 2015 Consultation on proposed changes to the Universities Superannuation Scheme

New defined benefit section for pension benefits provided after the implementation date

• Career revalued benefits
• Improved accrual rate – 1/75th of pensionable salary
• up to a salary threshold (proposed to be £55,000)

Example

Pensionable salary

• f £35,000 per year

Accrual rate of 1/75ths

÷

= £466

a year

X Inflation at 2.5% for

10 years (466 x 1.025¹⁰) = £598 a year

9

Pension provision on earnings above the threshold

9 March 2015 Consultation on proposed changes to the Universities Superannuation Scheme

New defined contribution section

• Contributions on pensionable salary above the salary threshold (proposed to be £55,000)
• Members’ contributions will be 8% and employers contributions will be 12% in respect of salary

above the threshold

• Choice of investment options and choice of retirement options

Example – career revalued benefits on salary beneath the salary threshold

Pensionable salary

• f £60,000 per year

Accrual rate of 1/75ths applied to first £55,000

÷

= £733

a year X Increases of 2.5% for 10 years (£733x1.025¹⁰) = £916 a year

10

Pension provision on earnings above the threshold

10 March 2015 Consultation on proposed changes to the Universities Superannuation Scheme

New defined contribution section

• Contributions on pensionable salary above the salary threshold (proposed to be £55,000)
• Members’ contributions will be 8% and employers contributions will be 12% in respect of salary

above the threshold

• Choice of investment options and choice of retirement options

Employer contribution 12% of £5,000 Member contribution 8% of £5,000

Example – defined contribution provided on salary above the salary threshold =

£ 1,000 a year

+

Amount made from investment (5%)

X X

For 10 years (£1000 x1.05¹⁰)

=

£1,551 DC account

11

Member contribution rate

11 March 2015 Consultation on proposed changes to the Universities Superannuation Scheme

Current final salary member contribution rate

7.5%

Current CRB member contribution rate

6.5%

Member contributions for proposed new section

8%

12

Employer contribution rate

12 March 2015 Consultation on proposed changes to the Universities Superannuation Scheme

Current employer contribution rate

16%

Employer contributions for proposed new section

18%

The future service benefits to be provided from the implementation date (that is, the proposed CRB benefits based on the 1/75th formula, plus 3/75ths lump sum, up to a salary threshold, and including death in service and incapacity benefits) The employer contributions to the funding deficit (that is the contributions which will be required under the recovery plan to fund the deficit) The employer contribution to the defined contribution component (in respect of salaries in excess of the threshold, for relevant members) The employer contribution to the defined contribution matching facility (in cases where members choose to make an additional contribution of 1%)

13 13 March 2015 Consultation on proposed changes to the Universities Superannuation Scheme

Further implications of the proposed changes

AVCs Transfers in

• Future transfers in on an entirely defined contribution basis
• Ending of USS’s membership of the public sector transfer club
• Consideration needed regarding non-club transfers approach
• Consideration of defined benefit (added years and CRB) and defined contribution facilities
• Option of continuity developed for existing regular instalment added years contracts and

revalued benefit AVCS in accordance with application

14 14 14 March 2015 Consultation on proposed changes to the Universities Superannuation Scheme

The consultation process

Employer consultation with affected employees Planned start date 16 March 2015 Planned end date 22 May 2015 Where to find out more? www.ussconsultation.co.uk

• Interactive modeller
• Detailed consultation material
• Q&As
• Ask your USS pensions contact