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The Threat to Your USS Pension. Type of Scheme. USS currently a Defined Benefit Scheme Pension based on final salary + length of service Pension benefits are known Risks carried by scheme (& employers!) Other type is Defined Contribution Payments invested

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type of scheme
Type of Scheme

USS currently a Defined Benefit Scheme

Pension based on final salary + length of service

Pension benefits are known

Risks carried by scheme (& employers!)

Other type is Defined Contribution

Payments invested

Benefits dependent on investments

Risks carried by members

current uss benefits
Current USS Benefits

Employee contribution 6.35% gross salary

For each year's contributions:

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
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
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
Valuations

2008 Triennial Valuation: 103% funded (31/03/2008)

2009 74% funded (31/03/2009)

2010 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.

Current Contributions:

- Employers: 16% (recent 2% increase for longevity)

- Employees: 6.35% (fixed in current USS Rules)

main risks
Main Risks

Longevity

Longevity has increased considerably

But how long will this continue?

Investment Strategy

Reduced risk = Lower returns

Salaries Risk

timeline
Timeline

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
UCU Proposal

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:

Up to 25K: 6.35% (no increase)

25K – 75K: 7.35% (+1%)

75K-125K: 8.35% (+2%)

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 1 st april 2011 existing members born before 1 st april 1956
Employers’ Proposal (from 1st April 2011):Existing Members Born Before 1st April 1956

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:

CARE with NPA 65 for post-break service (see following slide)

employers proposal from 1 st april 2011 existing members born on or after 1 st april 1956
Employers’ Proposal (from 1st April 2011):Existing Members Born on or after 1st April 1956

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:

Pension calculated on pensionable age 63½ or CPA if lower

Pension indexed by pension increase order

Service accrued from 1st April 2011:

Pension calculated on new NRA (65 → SPA)

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:

Post-break service in career average (CARE) scheme (see next slide)

employers proposal from 1 st april 2011 members joining from 1 st april 2011
Employers’ Proposal (from 1st April 2011):Members Joining From 1st April 2011

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

Tax-free lump sum of 3/80ths

Revaluation: full CPI up to 5%

Half CPI between 5% and 10%

No revaluation for CPI above 10%

Pension indexed at CPI with 5% cap

If break in service <= 1 month:

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 1 st april 2011 changes affecting all members
Employers’ Proposal (from 1st April 2011):Changes Affecting All Members

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
UCU Position

UCU had asked Bryn Davis (TUC actuary) to comment on proposals

Confirmed view of USS actuary that UCU proposals are sufficient to address funding shortfall

UCU believes employers using worst-case scenarios to justify benefits cut

Employers' long-term aim is to see their contributions fall from current 16% to 12% or lower

Alleged £17bn deficit is scaremongering and without foundation

wider implications 1
Wider Implications (1)

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
Wider Implications (2)

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
What Happens Next?

60-day Formal consultation commences in September- November 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
What Can YOU Do?

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