Summary of January 2015 proposals
During more than a year of discussions on reform of USS, a range of possible options has been considered, modelled and costed. Advice and views were sought by the JNC from USS, the Pensions Regulator, member representatives, employers, actuaries and pensions experts.
The proposed reforms are designed both to address the substantial deficit in the USS scheme funding and to mitigate the risk that contribution rates will become unaffordable for both employees and employers. The joint proposal outlined below aims to offer the best possible deal for employees within the constraints that the USS Trustee has set. The proposal retains a defined benefit (DB) structure, with an improved accrual rate, for the highest proportion of members possible, while remaining just within the affordability constraints identified by the Trustee.
The proposal is now the subject of formal consultation and member of USS and staff who are eligible to be members of USS are invited to contribute to the consultation. As a result of the consultation there could be some further changes to this proposal before a final decision is taken in summer 2015.
The University is currently carrying out an equality assessment and this will be published online when it is completed.
Summary of the joint proposal for reform of USS
- The proposed implementation date of the proposed benefit reforms is 1 April 2016.
- Final salary accruals would cease as at 31 March 2016. Benefits built up before this date would be protected. Their value would be calculated using the existing definition of pensionable salary and service as at 31 March 2016 and from that date accrued benefits would be increased annually in line with CPI, rather than increases in final salary.
- All members would build up future defined benefits in the Career Revalued Benefits (CRB) section based on an accrual rate of 1/75th of actual pensionable salary. The right to a tax free cash sum of 3 times pension (3/75ths) will also be increased in line with the higher accrual rate.
- Benefits in the CRB section would also be increased annually in line with CPI.
- Benefits in the CRB section would be based on the first £55,000 of the member’s pensionable salary. Therefore for members earning up to £55,000 their total salary would be pensioned through the CRB scheme. All members would receive this core benefit.
- The salary threshold would increase each year in line with CPI (subject to the outcome of a review to be completed by the USS Joint Negotiating Committee by 31 March 2020).
- If the member earns more than £55,000 they would still build up CRB benefits on their salary up to the salary threshold of £55,000, but any pensionable salary over this threshold would instead be pensioned through a new Defined Contribution (DC) section of the scheme. Employers would pay a contribution of 12% of pensionable salary over the threshold into the DC section.
- Employee contributions would increase to 8% of pensionable salary. If the member earns over the £55,000 salary threshold then their contribution of 8% of their pensionable salary over the threshold will be paid into their DC pot, in addition to the employer’s 12% contribution.
- All members would have the opportunity to choose to pay in an additional 1% of pensionable salary into their personal DC pot, which would be matched by their employer to build up an additional flexible DC fund. This option would be available to those members earning below the £55,000 salary threshold as well as those earning over this amount.
- Benefits on death in service and on ill health would remain comparable with current provision.
- Employers would commit to pay contributions of no less than 18 per cent of payroll for the next two valuations. This extends the increased employer contribution rate until the 2020 valuation (i.e. until 31 March 2020). 18% is a blended rate payable by all employers and includes the contributions to the DB and DC sections of the scheme. If the USS funding position as assessed at triennial valuations were to improve, over and above the improvements in funding assumed in the deficit recovery plan, employers would commit to using this to improve member benefits.
- There also remain a number of detailed specification points which the employers, UCU and USS and our advisers will discuss further.
This provides only a short summary of the proposed changes. Full information is available on the USS Consultation website - http://www.ussconsultation.co.uk