USS Briefing for EGM, Sept 2014
Steve Condliffe and Ricky Tutin
Joint Pensions Officers
1
2008 to date
• 2008 Employer contributions up from 14% to 16%
• 2010/2011:
– Benefit changes, dispute and industrial action
– Deficit £2.9 billion (92% funded)
– Recovery plan – employer contributions continued at 16%
• Final salary (FS) scheme protected for existing staff , but:
–
–
–
–
changes to inflation caps
removal of right to protected pension if redundant 55+ (stops October)
New Career-average Revalued Benefits (CRB) scheme for new entrants
Employee contributions from 6.35% to 7.5% for FS, 6.5% for CRB
• Leading to a divisive two-tier pension scheme:
– Same accrual as FS (1/80 : 1/65), revaluation at CPI
– Inferior to TPS (1/57), revaluation at CPI + 1.6%
2
USS valuation
• Projected cost of future benefits (liabilities) compared to existing
assets + expected contributions + investment return
• T = Formal triennial valuations with the Pension Regulator
Billions
March 2011
T
March 2012
March 2013
June 2013
(update)
March 2014
T, provisional
Assets
£32.4bn
£33.9bn
£38.6bn
£37.9bn
£39.1bn
Liabilities
£35.3bn
£43.7bn
£50.1bn
£45.8bn
£46.1bn
Deficit
£2.9bn
£9.8bn
£11.5bn
£7.9bn
£7.5bn
Funding ratio
92%
77%
77%
83%
85%
• Note:
Pensions already in payment are safe and pension benefits already
earned (past accrual) are largely safe.
3
Components in play
• Deficit recovery/avoidance
– Valuation assumptions
– Past service deficit
– Future service costs
• Financial Management plan
– Investment risk
– Reliance of the scheme on the sector (covenant)
– De-risking assumptions (stability of scheme/contributions)
4
Proposed changes and ‘hybrid’
• Employers keep their contributions within 16%-18%
• Final salary scheme is closed to new accrual from next year:
– Years of service already accrued will no longer be paid at
1/80 per year x £ final salary.
– Instead, 1/80 per year x £ salary at time of implementation,
increased annually by Consumer Price Index (CPI)
• All members will be put in the current Career Average (CRB)
section with an accrual rate of 1/80, revalued by CPI (capped)
• Salary that counts towards the CRB pension capped at £40K
• ‘High earners’ (>£40K) can make contributions above the salary cap
into a new Defined Contribution section
5
How this would work (fictitious)
• 2015. Salary £30,000. 6 years FS service. Retires 2019 with 10 years service
Salary
1/80
FS (6/80)
2016
CPI 3.1%
2017
CPI 5.2%
2018
CPI 2.2%
2019
CPI 2.7%
£2250
£2320
£2440
£2494
£2561
£393
£414
£423
£434
£408
£417
£428
£402
£413
2015
FS
£30,000
£375
2016
CRB
£30,500
£381
2017
CRB
£31,000
£388
2018
CRB
£31,500
£394
2019
CRB
£40,000
£514
Pension
£4350
Lump
£13,050
• Under FS: £40,000 *10/80 = £5,000 pa. Lump sum £15,000
• £650 pa less (~13% less) and £1,950 lump sum less.
6
How hybrid works
7
8
Contribution rate projections
• Current: Employer = 16%, FS = 7.5%, CRB = 6.5% Blended: 23.4%
Scheme
Past service
deficit
Future service
Total
Note
Status quo
FS indexation
CRB for new
10.9% spread
over 15 years
26.7% FS
19.1% CRB
= 28.5% blended
36.75%
With de-risking
TPS for all
No change to
accrued FS
indexation
10.9% spread
over 15 years
33.0%
43.9%
With de-risking
Hybrid
CPI indexation
for past service
4.3% spread
over 15 years
< 21.5%
<25.8%
Reduced derisking
• Ernst & Young. Employer: 16%-18% | 18%-21% | 21%-23%
9
Negotiator guiding principles
10
Possible timetable
• 19 September, Special post-92 Conference on USS
• 24 September: USS Board of Trustees meet to discuss valuation
assumptions & technical provisions for consultation
• Late Sept – early Oct: University Roadshows
• 1-20 October: Ballot for industrial action (if necessary)
• 22 October: New scheme design formally tabled at JNC
• 24 October: UCU HEC
• Possible ASOS in Autumn term (assessment / exams)
• 13 November: JNC expected to agree scheme design
• 20 November: USS Board ratify proposals
• Late 2014- Early 2015: USS formal consultation
• Mar 2015 – Oct 2015: Possible implementation target
11
Proposal for ballot and action
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