USS – a two-minute read on what you need to know
28 Oct 2021
Here’s a recap of where the valuation, proposed changes and pension consultation stand and information, guidance and support for affected colleagues
We understand that there has been a lot of news articles about the USS scheme, including the 2020 valuation process and potential changes to the Scheme. Here’s a short article summarising all the relevant information – we hope it helps you understand your pension and future options.
2020 Actuarial Valuation
- Every three years the Trustee must value benefits – called an actuarial valuation - this found that the Scheme had a large deficit and future cost of providing benefits was much higher;
- USS Trustee costed future provision of benefits to be 42% - 56% of salary;
- Given this, UUK, which acts as the employer representative, developed a package of possible changes – these retain the scheme’s ‘hybrid’ structure, where benefits are built up on both a defined benefit and defined contribution basis;
- UUK also committed considerable covenant support worth £1.3bn;
- This was considered by the Joint Negotiating Committee (JNC) which considers rule changes. These changes were agreed in September 2021 and the USS Trustee agreed to finalise the valuation on this basis;
- This has resulted in the contribution rates changing from 1 October 2021 to 9.8% for members (previously 9.6%) and 21.4% (previously 21.1%). However, this has negated rises that were due of 11% and 23.7% respectively;
- Concerns from a number of parties have been expressed as to the valuation date and methodology – ultimately it is important to note that it is the USS Trustee (and its actuary) which sets this, even if others don’t agree with it. Furthermore, the Trustee has stated that it doesn’t believe a materially different picture would emerge if a different date was used for the valuation. They have noted that whilst the deficit would be lower, the future cost of providing benefits would actually be higher;
- The Pensions Regulator has also actively been involved in the process – they have stated that they believe this is at the limit as to what is acceptable, and the contribution rate should be 1-2% rate higher. However, they have confirmed that from their perspective, they won’t take any further action on the basis of what has been agreed;
- As the changes will see a change in benefits built up, a 60-day member consultation is required. Further information is below.
- All parties are committed to working together to explore future options for scheme design, including shaping a lower cost option so colleagues are not priced out by high contribution rates.
Benefits built up to 31 March 2022 are secure and will remain unchanged.
Broadly speaking, from 1 April 2022 it is proposed that:
- Pension in the defined benefit section is built up at 1/85 of salary (currently 1/75), up to the salary threshold;
- Lump sum in the defined benefit section is built up at 3/85 of pension (currently 3/75), up to the salary threshold;
- Salary threshold will reduce to £40,000 (currently £59,883.65). Benefits above this will be built up in the defined contribution section;
- From 1 April 2023 salary threshold will increase with Consumer Prices Index (CPI), but now capped at a lower rate of 2.5% (currently 5%);
- Benefits in the defined benefit section will continue to see increases applied annually before and after members retire, but subject to CPI capped at 2.5% (currently 5%, although 50% of the excess above this is taken into account up to a maximum of 10%); and
- Members who are only in the scheme for less than two years will be provided with full deferred benefits in the defined benefit section (on average this is an improvement from now).
Should the above changes not be agreed and implemented, then benefits will continue to accrue on the current basis, but contribution rates will increase in April 2022 to 11% for members and 23.7% for the university. This will then step up every six months to reach 18.8% and 38.2% respectively by October 2025.
- Proposed changes subject to 60-day member consultation. This will run from 1 November 2021 – 17 January 2021. This is important and open and employers, including the University of Manchester, have stated that they will still consider alternative benefit structures provided they are viable, affordable and implementable;
- More information and your chance to provide feedback is available at the consultation website. This also contains a modeller where you can see how the proposed changes will impact your pension;
- All responses are anonymous and will be considered, with a final decision communicated in February 2022;
- The University of Manchester remains committed to supporting members during this time and will be holding future open sessions.
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