Proposed changes to USS contribution rates
25 Jul 2018
Read the latest message from USS on cost sharing
In May, we told you how we are using the cost sharing process (Rule 76.4-8) to complete the 2017 valuation.
In June, we explained why this is happening at the same time the Joint Expert Panel is assessing the valuation.
This month, we have more detail on what it will involve for you, as a member, and your employer from April 2019.
How the cost sharing rule will affect you
The cost sharing process will mean an increase in contributions for everyone that pays into USS.
Summary of proposed changes
- Member contributions to increase from 8% to 8.8% of salary from 1 April 2019
- Further increases to member contributions to be phased in at 1 October 2019 (10.4%) and 1 April 2020 (11.7%)
- Employer contributions to increase to 19.5% of salary from 1 April 2019, followed by 22.5% from 1 October 2019 and 24.9% from 1 April 2020
- 8% of member contributions from salary above the defined benefit threshold (2018/19: £57,216.50) to continue to be saved in the USS Investment Builder, with the excess of these member contributions supporting defined benefits in the USS Retirement Income Builder
- Employers’ contributions to the USS Investment Builder of salary above the threshold to remain at 12%
- The 1% employer match into the USS Investment Builder to be discontinued from 1 April 2019
The 2017 valuation estimates that the scheme needs an extra £900m a year in contributions from members and employers to continue to offer the current level of benefits in future and to ensure benefits already earned (which will be paid out over multiple decades) are funded in full.
To make up this amount, their combined contribution would need to increase by 11.4% of salary, from 26% today to 37.4%.
The Joint Negotiating Committee (JNC) has not been able to decide on a way to respond to this increase, resulting in the operation of the default cost sharing process which will enable us to meet our legal obligations and our obligations to members.
Under the cost sharing process, the 1% employer match to the USS Investment Builder would be discontinued, reducing the overall contribution rate required from 37.4% of salary to 36.6% - an increase of 10.6%.
Subject to consultation, in accordance with the scheme rules the increase will be shared between members and employers on a 35:65 basis.
We have proposed to phase in the increase, to help members and employers prepare and to afford the JNC time to consider changes that could be introduced before the higher increases come into effect.
| From 1 April 2019 | From 1 October 2019 | From 1 April 2020 | |
|---|---|---|---|
| Member rate* | 8.8% | 10.4% | 11.7% |
| Employer rate* | 19.5% | 22.5% | 24.9% |
* of salary
You can work out roughly how these increases would affect you by applying the percentages above to your gross (pre-tax) monthly pay. This will give you an estimate of the amount that would be deducted from your salary. For example:
| Example: £36,000 salary = £3,000 per month (pre-tax) | ||
|---|---|---|
| % of salary | Monthly deduction | Monthly change |
| 8% | £240 | Current position |
| 8.8% | £264 | £24 |
| 10.4% | £312 | £72 |
| 11.7% | £351 | £111 |
Please note: This is a pre-tax example; the exact deduction would most likely be marginally lower depending on tax and salary sacrifice arrangements. The above information is indicative only and should not be relied upon by you.
From September, there will be a 60-day statutory employer consultation on these proposals with affected employees (active members and those eligible to join) and their representatives. As part of this, your employer will give you more information on how this will affect you, and you will have a chance to share your thoughts.
These links provide further information from the USS: