Transcript The Threat to YOUR 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
2010
103% funded (31/03/2008)
74% funded (31/03/2009)
91% funded (31/03/2010)
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
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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 following specification 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 earnings, 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 if aged 55 years by April 2011
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 with review to scheme experience
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
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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 RPI
 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 RPI
Employers’ Proposal (from 1st April 2011):
Changes Affecting All Members
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Right to unreduced pension on redundancy disappears
1st April 2013
 Flexible retirement on reduced hours (but not reduced
FTE salary) and 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)
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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%)
 Fixed Term contract employees and women who take
career breaks will be hardest hit
Wider Implications (2)
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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 will happen to VC pay if in this new scheme?
 Hutton is reviewing public sector pensions, reports in
September and final report in March when more idea of
the shape of these.
What Happens Next?
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60-day Formal consultation commences in SeptemberNovember how not yet known
All UCU branches in participating institutions must
respond to consultation, employer has to consult
recognised trade unions.
All USS members in the institution must be reached and
encouraged to respond. Pressure of employers to
publish their response in the consultation locally.
UCU is calling for USS to ballot all USS 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