University of Nottingham UCUGeneral Meeting – Proposed changes to USS pensions

USS GovernanceWHO IS INVOLVED IN SHAPING THE USS SCHEME?

There are four key actors with a considerable influence on the shaping of our pension scheme:

The USS Corporate Trustee (the USS Board) The Employers UCU The Pensions Regulator (tPR)

Any changes to the Scheme have to be agreed by the Joint Negotiating Committee, containing eleven members (5 representatives of the Employers, 5 representatives of UCU and the independent chair, Sir Andrew Cubie).

University of Nottingham UCUGeneral Meeting – Proposed changes to USS pensions

Changes to USS in 2011

Prior to 2011, the USS pension scheme was organised as follows:

•All pensions were Final Salary Pensions.

•The pension was worked as a member’s final salary times the number of

years of service divided by 80. In addition a lump sum of three times this amount

was payable on retirement.

•After retirement the USS pension was increased with the RPI inflation index.

On 10 May 2011, detrimental changes were finally forced through the JNC

against UCU’s wishes. Although we were successful in defending the position of

the final salary scheme for existing members, there were some changes.

University of Nottingham UCUGeneral Meeting – Proposed changes to USS pensions

Changes to USS in 2011, continued...The changes introduced were:

Existing members stayed in the Final Salary section, but contributions increased from 6.35% to 7.5% of salary.

Removal of the right of members over 55 made redundant to be able to retire with an unreduced pension.

New members went into the Career-average (CRB) section and contribute 6.5% of salary. Each year of salary is re-valued by the cumulative CPI inflation index from that year to the year of retirement (except for any years when CPI exceeds 5%) before the average is calculated, and pension is that average times years of service divided by 80.

For both sections, pension is increased with CPI instead of RPI after retirement, a decrease of typically 0.8% per year, and only if CPI is lower than 5%.

The lump sum of 3 times pension is retained in both sections.

University of Nottingham UCUGeneral Meeting – Proposed changes to USS pensions

Why are further changes proposed?

The deficit or surplus of a pension scheme is the difference between its assets and its liabilities. The UK Pensions Regulator requires each pension fund to perform a formal valuation every three years and agree a recovery plan within 15 months of the valuation date if it indicates a deficit.

In the last few valuations, the USS pensions scheme has been in deficit.

March 2011 (Triennial)

March 2013 March 2014 (Provisional Triennial)

Assets £32.4bn £38.6bn £39.1bn

Liabilities £35.3bn £50.1bn £46.1bn

Deficit £2.9bn £11.5bn £7.5bn

Funding Ratio

92% 77% 85%

University of Nottingham UCUGeneral Meeting – Proposed changes to USS pensions

What are the proposed changes? Existing Final Salary members move to Career Average (CRB) for further

accruals, so all members are in CRB except those who have already retired.

Employees’ CRB contribution rates rise to 7.6%, employers’ to 18%.

Past accruals for Final Salary members are converted to use the salary in the year of the change instead of the salary at retirement (or maybe the current best 3 out of previous 13 years rule is applied), re-valued with CPI from the change to the year of retirement. We believe that this could result in considerable losses for current members of the scheme.

For future accruals CRB applies only to salary up to a cap, suggested at £40k.

Contributions for salary amounts above the cap go into a defined contribution scheme.

In the longer term, UCU is concerned that this could result in all pensions moving to considerably less generous defined benefit arrangements.

University of Nottingham UCUGeneral Meeting – Proposed changes to USS pensions

Modelled Example of changesAssuming an annual pay settlement 1.8% above CPI, which is what was assumed in the 2011 USS valuation, and using one particular quote for an annuity, we’ve modelled the pensions of various types for an example academic career path.

This is based on an academic who starts at grade 4, point 29 at age 25, increments annually until reaching the top of grade 6, point 52 at age 48, and retires at 65. The final line is italicised to indicate that this estimate is highly uncertain.

Pension Type

USS Pension

State Pension

Total % of final salary

Final Salary

£29,957 £5,881 £35,838 60%

CRB on full salary

£18,787 £5,881 £24,668 41%

CRB to £40K

£14,088 £5,881 £19,969 33%

CRB to £40K + DC as annuity

£16,742 £5,881 £22,623 38%

University of Nottingham UCUGeneral Meeting – Proposed changes to USS pensions

Timetable for Further Talks

UCU Decision making conference

Friday 19 September To discuss report from UCU negotiators and decide next action

USS Board 24 September Important Valuation assumptions and technical provision for consultations

USS JNC 22 October Proposed scheme design formally tabled

USS JNC 13 November USS likely to want scheme design settled

USS Board 20 November Finalise technical provisions and agree terms of consultation

University of Nottingham UCUGeneral Meeting – Proposed changes to USS pensions

Guiding Principles for Negotiatorsa) UCU recognises that the attack on our pension scheme by employers is

part of a politically motivated attack, not only on the fundamental contract of defined benefits pension schemes, but also on the future of HE;

b) The new methodology adopted by USS for valuing the scheme should be fundamentally challenged;

c) We recognise that the funding situation may require an increase in employer contributions and that pension provision should be set at a level which is affordable for the institutions in the long term;

d) We consider it vital to maintain a defined benefit scheme;e) We accept that there could be a limited increase in employee

contributions in return for benefit improvements to the CRB section ;f) We consider that any changes to the benefit structure should provide for,

and foreground in negotiations regarding USS, inter-generational fairness and benefit the vast majority of members in the future;

g) We require any improvements in the funding position to be used to improve defined benefits

University of Nottingham UCUGeneral Meeting – Proposed changes to USS pensions

Over to you...