University of Sussex
Presentation to USPAS Pension Members
June 2008
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Agenda
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Consultation
Current USPAS Scheme
The National Landscape - a Recap
Impact on USPAS
Proposal for Consultation - Existing Members
Future Employees - for Information
Summary of Proposal
Consultation Process - Next Steps
Consultation
 Requirement to consult with pension members for 60 days
 Today, June 11th as start of that process
 More information on consultation process at end of today’s
presentation
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Current USPAS Scheme
 A defined benefit pension scheme
 Independent pension scheme
 Governed by trust deed and rules
 Benefits at retirement based upon combination of:
 Length of service
 Level of pension scheme salary at retirement age
The National Landscape – a Recap
 The cost of providing defined pension benefits has increased
significantly due to:
 Legislation
 Mortality
 Reduction in Long-Term Interest Rates
 Factors outside control of University of Sussex!
 Affect all defined benefit schemes
 Have given rise to significant deficit in scheme funds
 Most recent update shows this deficit to be getting worse
Valuation of USPAS
 Actuarial valuation at March 2006 showed a deficit (difference between
assets and liabilities accrued) of £23.2M
 Agreement with The Pension Regulator obtained to fund this deficit over
20 years
 Annual updated valuation in 2008 shows slippage of deficit to £28M in
spite of additional payments, due to stock market and interest rate
fluctuations
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Mortality Improvement
Projected life expectancy at age 65, UK males
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1985
1990
Source: GAD projections
1995
2000
2005
2030
Reduction in Long-Term Interest Rates
Long-Term Gilt Yields
12%
10%
8%
6%
4%
2%
1990
1995
2000
2005
Impact on USPAS
University faces a serious problem with the funding of the existing
defined benefit scheme:
 University contribution has increased from 19.5% to 29.2%(1)
 This is an increase in actual costs from £2.2M to £3.75M
 In 2012 University contributions will further increase by approx
1.4%(1) due to future legislative change
 Member contributions have remained at 6%
(1) Of pensionable salaries of USPAS membership
Proposal for Consultation - Existing Members
 University did consider closing USPAS and introducing other more radical
options
 However, University considered it a priority to honour commitment to a
defined benefit scheme to those employees already in USPAS
 But, it is necessary to make some changes to USPAS in order to facilitate the
continued offer of a defined benefit scheme to current members
 Changes only apply to future service that will be accrued; all past service
benefits are not affected by the proposed changes.
Proposal for Consultation - Existing Members
 The proposal being made preserves USPAS as a defined benefit
pension scheme
 The scheme currently offers retirement benefit that accrues at the
rate of 1/60th of employee’s final salary for each year worked –
this does not change under proposal (e.g. does not change to
1/80th )
 Life assurance benefits would also not change
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Proposal for Consultation - Existing Members
Proposed future benefit changes
 Employee contributions would increase from 6% to 10%
 For staff who retire before age 65, an actuarial reduction would be applied to
benefits, except in the case of ill-health retirement
 Future service would earn entitlement to pension-in-payment increases in line
with RPI but capped at a rate of 2.5%
 Future increases in the cost of future USPAS benefits, as determined at future
valuations, would be shared 50/50 between employer and employee
Changes only apply to future service – not to service accrued to date!
For Information - Future Employees
 Future employees would not be eligible to join USPAS; they would not
have any existing expectation of a defined benefit pension scheme
 Current USPAS membership only around 55%-60% of staff
 Survey & Focus Group findings – more flexible pension desired
Changing patterns of employment show shorter periods of employment
Therefore the University proposes to offer a flexible and portable Defined
Contribution pension scheme to future staff
This would also be made available to existing employees not currently
members of USPAS
For Information - Future Employees
Defined Contribution Scheme – Benefits
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Different rates of contributions open to employees
Ability to make additional lump sum contributions
Ability to accept transfer of other retirement benefits
No single window of opportunity to join the pension scheme
Scheme would be portable
Normal retirement age would be 65
Death in service benefit of 3.5 times salary, paid as a lump sum
For Information - Existing Employees not in USPAS
Defined Contribution Scheme – Benefits
 Same benefits as proposed for new employees
 But also a bonus payment into the scheme of 2% of monthly
pensionable salary for each month employee contributes to scheme in
its 1st year
Design of Proposal –
Existing Members, Non-Members, New Employees
The University has made every effort to balance a number of issues, e.g.
 An affordable and sustainable pension solution – but this is not about saving
money
 Expectations of current USPAS members of a final salary pension scheme
 Inclusiveness through greater pension take-up for staff with no pension
 Flexibility through different contributions for employees who may find it difficult
to balance a fixed rate contribution with other life commitments
 Fairness across cost of employer contribution rate between a revised USPAS
scheme and the new scheme
Summary of Proposal –
Existing Members, Non-Members, New Employees
 Defined benefit scheme preserved for existing members (approx. 55% of
eligible staff)
 New scheme introduced for future employees & current non-members
 Target coverage of new scheme = 85%
 Costs:
 USPAS annual cost in 2005: circa £1.9M
 USPAS annual cost in 2007: circa £3.5M
 Future provisions at 2007 prices in 2012: circa £4M
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Consultation Process - Existing Members - Next Steps
 Today, June 11th is start of consultation with current USPAS members
 Repeat of this presentation on 2 further dates in June
 In addition:
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Consultation sheet for feedback on the proposal affecting members
Smaller group consultation meetings for members’ comments and questions
Website information, e.g. Q&As
Dedicated email address for members’ comments
 We want to hear your views on the proposal affecting existing members
In parallel, we will be holding negotiations with your unions on the
proposal for existing members, non-members and future employees
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Any Questions?
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