Transcript USS Pension

The Threat to Your USS
Pension
Type of Scheme
 USS
currently a Defined Benefit Scheme
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Pension based on final salary + length of
service
Pension benefits are known
Risks carried by scheme (& employers!)
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 Other
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type is Defined Contribution
Payments invested
Benefits dependent on investments
Risks carried by members
Current USS Benefits
 Employee
contribution 6.35% gross salary
 For each year's contributions:
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Pension 1/80th of final salary
Lump sum 3/80ths of final salary
 Pension
indexed by pension increase
order (which sets official pensions)
 Members aged 55+ have right to
immediate unreduced pension on
redundancy
 Dependents' pensions
USS Governance
 Joint
Negotiating Committee (JNC) must
approve any rule changes
 Equal UCU and Employer representation
 Independent chair (Sir Andrew Cubie)
 Chair has casting vote
 Casting vote unused until 7/7/10
 Joint Review Group (JRG) formed as
subcommittee in 2008
Remit of JRG
 USS
Executive and Mercers (scheme
actuary) produced report on risks and
funding issues of USS scheme.
 JRG to review this and propose scheme
changes to address these.
 Proposals should have gone to JNC on
30th April for formal decision.
Valuations
2008 Triennial Valuation:
2009
103% funded (31/03/2008)
74% funded (31/03/2009)
USS actuary advises 0.9% increase in contributions are likely to be
needed over next 2 valuations due to longevity.
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Current Contributions:
- Employers:
16% (recent 2% increase for longevity)
- Employees:6.35% (fixed in current USS Rules)
Main Risks
Longevity
Longevity has increased considerably
But how long will this continue?
Investment Strategy
Reduced risk = Lower returns
Salaries Risk
Timeline

JRG ended without agreement in mid-April
 On last day, employers' lead negotiator suggested a
compromise which was accceptable to UCU negotiators
 After USS staff had typed up draft agreement, rest of
employers' negotiators rejected it.
 Late on 29th April, employers sent new proposal by
email. This was even worse than previous proposals.
 At JNC on 30th April latest employers' proposals were not
considered.
 UCU tabled proposal submitted to JRG in January
 Both proposals went to JNC on July 7th
 Independent chair voted with employers
UCU Proposal
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Normal Retirement Age of 65 for new entrants.
Current members to retain existing retirement age unless break in
service >= 2 yrs
Increase in employee payments by average 1% of salary:
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Up to 25K:
6.35% (no increase)
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25K – 75K:
7.35% (+1%)
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75K-125K:
8.35% (+2%)
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125K + :
9.35% (+3%)
Cost-sharing for future service: 65% Employers : 35% Employees.
Flexible retirement: reduce hours and/or FTE salary, draw part
pension
Actuarial projection is that these changes would mean no extra
increases to contributions at 2011 Triennial Valuation.
Employers’ Proposal (from 1st April 2011):
Existing Members Born Before 1st April 1956
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Remain in final-salary scheme
Employee contributions increased from 6.35% to 7.5%
Retain existing retirement arrangements
Pension accrued up to 1st April 2011 indexed by pension increase order
Pension accrued from 1st April 2011 indexed at CPI with 5% cap
If break in service >= 1 month:
Service accrued from 1 April 2011 to break “poisoned” by 2.5%
CPI cap
 If break in service > 6 months:
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CARE with NPA 65 for post-break service (see following slide)
Employers’ Proposal (from 1st April 2011):
Existing Members Born on or after 1st April 1956
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Normal Retirement Age of 65 for all members born on or after 1st April 1956
NRA then to track State Pension Age
Remain in final-salary scheme
Employee contribution increased from 6.35% to 7.5%
Service accrued up to 1st April 2011:
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Pension calculated on pensionable age 63½ or CPA if lower
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Pension indexed by pension increase order
 Service accrued from 1st April 2011:
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Pension calculated on new NRA (65 → SPA)
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Pension indexed at CPI with 5% cap
 If break in service >= 1 month:
Service accrued from 1 April 2011 to break “poisoned” by 2.5%
CPI cap
 If break in service > 6 months:
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Post-break service in career average (CARE) scheme (see next
slide)
Employers’ Proposal (from 1st April 2011):
Members Joining From 1st April 2011

Normal Retirement Age of 65
 NRA then to track State Pension Age
 Career Average (CARE) scheme for all new members:
 Pension of 1/80th for each year of contributions
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Tax-free lump sum of 3/80ths
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Revaluation: full CPI up to 5%
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Half CPI between 5% and 10%
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No revaluation for CPI above 10%
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Pension indexed at CPI with 5% cap
If break in service <= 1 month:
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Service accrued before break “poisoned” by 2.5% CPI cap
 Major cut in benefit for new members:
 Lecturer B (A/R 8) retiring on point 43 will lose ~ 22.5% in both pension and
lump sum, loss over retirement £92,916 at 2010 prices
 Senior Lecturer (A/R 9) retiring on point 50 will lose ~ 26% in both pension
and lump sum, loss over retirement £130,554 at 2010 prices
Employers’ Proposal (from 1st April 2011):
Changes Affecting All Members

Right to unreduced pension on redundancy disappears
1st April 2013
 Flexible retirement on reduced hours (but not reduced
FTE salary) – minimum reduction of 20%
 Cost-sharing 65% / 35% for both past and future service
 Right to draw pension from age 55 subject to actuarial
reduction (currently ~4% for every year below pension
age)
 Dependents' pensions + death-in-service lump sum
reduced in proportion to member's pension
UCU Position
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UCU had asked Bryn Davis (TUC actuary) to
comment on proposals
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Confirmed view of USS actuary that UCU proposals
are sufficient to address funding shortfall
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UCU believes employers using worst-case scenarios
to justify benefits cut
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Employers' long-term aim is to see their
contributions fall from current 16% to 12% or lower
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Alleged £17bn deficit is scaremongering and without
foundation
Wider Implications (1)

EPF proposals would make USS inferior to TPS
 Pension + lump sum reduced by about a quarter vs final
salary for typical career paths
 In order to match final-salary benefit, CARE members
would need to pay 100% salary AVCs (i.e. work for no
take-home pay!) for final 2.5 - 3 years before retirement
 Inflation capping in CARE scheme means a few years of
high inflation near retirement could erode your pension
 Inflation capping of deferred benefits means a break in
service of 1 month could erode earlier benefits (one year
of CPI at 12.5% will reduce earlier benefits by 10%)
 FTC employees and women who take career breaks will
be hardest hit
Wider Implications (2)

Someone who leaves USS (or has a break in service) 10
or 20 years before retirement could see deferred benefit
reduced to a pittance by inflation
 Anyone who moves between pre-92 and post-92
employers (or has a period of employment outside UK)
will be at the same risk
 How long will final-salary scheme survive?
 If you want a better pension, have a career in post-92
institutions???
What Happens Next?
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60-day Formal consultation commences in September
 All UCU branches in participating institutions must
respond to consultation
 UCU is calling for USS to ballot all members on both sets
of proposals
 Rule changes will take some time to draft, but will then
go to next JNC
 If no movement in employers' position UCU will move
towards ballot on industrial action
What Can YOU Do?
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Current threat to USS can only be countered by
collective action from UCU
 Ensure your colleagues understand the threat
 Encourage colleagues who are not UCU members to join
immediately
 Ensure future academics (your PhD students) are aware
of the threat to their pensions – they have most to lose
 If a ballot of USS members is held, vote for UCU
proposals and against EPF proposals
 Attend UCU general meetings and rallies
 Volunteer as a departmental rep
 Prepare for serious industrial action later this year
 If industrial action is called, give your total support