Glossary of Terms
DB scheme - Defined Benefit scheme
A scheme in which the benefits are defined in the scheme rules and accrue independently of the contributions payable and investment returns. Most commonly, the benefits are related to members' earnings when leaving the scheme or retiring, and the length of pensionable service.
Also known as 'final salary' or 'salary-related' scheme.
FS scheme – Final Salary
The basis for this is a pension based on your “pensionable Service “and “pensionable salary”. You get 1/80th of your final pensionable salary for each year of pensionable service.
Is normally the number of years and days that you have worked with one or more USS employers in pensionable employment.
Pensionable Salary – (for Final Salary benefits only)
Is your highest average salary, worked out with a formula designed to give you the best possible calculation – ‘smoothing out’ any adverse ups and downs in your salary over the years, and making adjustments for price inflation. We calculate your annual salary for each period of 12 months, while you have been a USS member, over a maximum of 13 years prior to your retirement and revalue each salary, except the last 12 months, according to the
movement in price inflation.
CRB scheme – Career Revalued Benefits
Your pension builds up gradually over time and is calculated each year as:1/80th x salary for each year of membership At the end of each year, your pension for that year is calculated and ‘banked’. The following year you add the pension you banked in the previous year to 1/80th of that year’s salary and so-on. The value of your ‘banked’ pension is revalued each year
DC scheme – Defined Contribution
Annual amount contributed from Employee and Employer is invested in funds (“pension pot”).
The pension pot grows over time as a consequence of these investments.
At retirement, the pension post is used to purchase a pension (annuity) and/or taken as a cash sum (new legislation April 2015)
Can also be known as “Money Purchase” schemes
RPI -Retail Price Index
The official “cost of living” index in the UK based on a monthly survey of the prices of a basket of goods and services.
CPI – Consumer Price Index
Another index used by the Government to identify the cost of living, traditionally the CPI is lower than the RPI but it still looks at the price changes for each item in a predetermined basket of goods and averages them; the goods are weighted according to their importance.
A professional person qualified to use mathematical and forecasting principles to independently investigate and evaluate the financial status of pension schemes. The formal actuarial valuation, required by law, assesses the ability of a pension scheme to meet its liabilities.
Pension Scheme Valuation
A formal valuation, also known as an actuarial valuation, must be done every three years to provide a report to the Pensions Regulator of its funding position. This formal valuation is carried out by the trustee with the support of the scheme actuary, an appointed specialist who reports to the board. The valuation processes include placing a value on the scheme’s assets at the valuation date, and calculating the amount needed to pay the pension rights already accrued under the scheme, both for pensions already in payment and those which will become payable in the future. These calculations are based on full member data assembled by the trustee, which (for active members) is supported by payroll and other data collected from the employers.
A number of assumptions are decided on by the trustee, after consultation, and these must be set prudently. The assumptions made are both financial and demographic, for example, the actuary estimates for how long someone might live after they have retired and therefore for how long they (and their beneficiaries) might be claiming a pension. This assumption is based on national statistics along with the scheme specific experience and trends. Longevity is just one of a number of important assumptions used to calculate current and future liabilities, others include those made to allow for inflation, and the rate of return that will be achieved on scheme investments.
These are the investment holdings the USS have such as shares in UK and International Companies and Government Bonds – the value of these investments are the amount of “assets” that the scheme has.
These are the current and future benefits that the scheme has to pay – these are the value of the benefits built up in the scheme by all members including those who have left the scheme but have a frozen benefit to claim later and those who have retired and are claiming a pension. The total values of these benefits are the “liabilities” the scheme has.
The amount by which a scheme's liabilities exceed its assets.
Is the Regulatory body for work-based pension schemes in the UK, and is required under law to agree and sign off on the valuation and recovery plan set by any private pension arrangement