Major changes to pensions

LUCU consulting members about proposed changes to USS pensions

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Members may be aware of the latest proposed changes to the USS pension scheme. If these proposals are enacted in full it will mean the end of the final salary pension scheme for University staff. A briefing from the employers pension forum is available here and the UCU response is here.

Below is a briefing outlining the current proposals (with thanks to UCU Bristol)

 

Changes following the 2011 deficit

In 2011, in response to a declared deficit of £2.9bn, changes to the scheme's benefit structure were imposed. Although we were successful in defending the final salary scheme for existing members, there were some changes; including an increase in contribution rate from 6.35% to 7.5% and the removal of the right for members made redundant over 50 to retire on an unreduced pension. However, new entrants from 1 October 2011 are placed in a scheme not based on final salary, but a career-average scheme (career revalued benefits, CRB), based on an accrual rate of 1/80th, revalued each year by the Consumer Price Index (CPI). While UCU does not object in principle to a CRB scheme, we have a problem with this particular scheme, especially the accrual rate. It means that there is a big gap between the expected pensions of existing members and new entrants, and we have pointed out that when employers create a divisive two-tier benefit system, there is soon pressure to close the better scheme.

We have also argued continually since 2011 that the USS CRB scheme benefits are significantly inferior to the career-average scheme available to the majority of members in post-92 institutions, the Teachers' Pension Scheme (TPS CARE), and that this is not only bad news for USS CRB members, but could lead to recruitment and retention difficulties for the pre-92 Universities. Our primary negotiating aim has been to seek comparability with the TPS: see UCUHE/191: USS - Report to HE Sector Conference - May 2013.

The current deficit

The current valuation deficit of £7.5bn (85% funded) is provisional; a figure cannot be formally declared until the USS Board have consulted stakeholders and the (potentially contentious) valuation methodology and assumptions have been finalised. However, all the indications are that a considerable deficit will be declared and further changes will be made to the scheme.

Is my pension safe?

Our employers and the USS emphasise that pension rights that you have already accrued (as well as pensions in payment) are protected by law and backed by the employers in the HE sector, but that there may be changes to pension benefits for future service and changes to contribution rates

In reality, it is inconceivable that the employers' contributions will not increase from the current 16%. It is equally clear that, just as we predicted in 2011, further radical changes to the benefit structure will be pursued.

Changes currently under discussion for 2015

Changes currently under consultation between Universities UK and the employing institutions are detailed in the Employers Pension Forum briefing on the USS - July 2014. In summary:

1.The employers aim to keep their contribution rates within the range 16%-18%. Under the current cost-sharing arrangement, any increase from the current 16% could trigger an increase in the CRB employee contribution rate from the current 6.5% (2/3 of the increase being paid by the employer, 1/3 by the employee). Contribution increases of this magnitude will be nowhere enough to address a deficit calculated under current stringent assumptions, so the following radical future benefit reductions are being actively considered.

2.The final salary section of USS will be closed to existing members. The final salary benefits that existing USS members have already built up will no longer be based on the final salary at retirement, but will be calculated based on their salaries at the date the changes come into force (possibly April 2015) and from that date on will be increased each year in line with the Consumer Prices Index (CPI).

3.All members of USS will join the Career Revalued Benefits (CRB) section for future service, based on the current accrual rate of 1/80th, with annual revaluation of CPI if CPI <= 5% and thereafter 50% of additional CPI to a maximum annual revaluation of 10%. This is a poor scheme compared to the current final salary scheme and the TPS CARE scheme.

4.Benefits in the CRB section will only be accrued up to a salary threshold, beyond which contributions may be made only to a newly-created Defined Contribution (DC) scheme. The salary threshold had not yet been set, but a salary of £40,000 has been shown in certain illustrations. For these higher-earners it is envisaged that employers will contribute 12% of the salary above the salary threshold to the DC scheme and employees will contribute 6.5%.

5.The DC scheme benefits are not guaranteed; they will depend on the amounts contributed and investment performance. Employees will be able to pay additional contributions into the DC section and the employers may match those contributions (with levels and limits not yet set).

6.Death in service and ill health benefits have not been finalised, but will broadly be derived from the final salary benefits to the date of change and CRB benefits thereafter, with DC benefits for those above the earning threshold potentially provided through an additional insured solution.

What next?

These changes will have a huge effect on staff pensions. The union will therefore need to discuss with members before action is taken. Below is the current probable timetable. The LUCU branch is currently in the process of arranging an EGM.

Special pre-92 branch decision-making conference Friday 19 September To discuss SWG/negotiators’ report and decide on next action.
USS Board 24 September Important valuation assumptions and technical provisions for consultation
Ballot period Wed 1 to Mon 20 October
Ballot closes Mon 20 October Action could start end Oct/beginning of Nov
USS JNC 22 October Proposed scheme design formally tabled
HEC 24 October
USS JNC 13 November USS likely to want scheme design settled?
USS Board 20 November Finalise technical provisions, agree terms for formal consultations (60 days) on changes
USS Board Jan 2015 Refinements following consultations
USS Board Mar 2015 Final/implement (note some are suggesting that the changes would take effect from October 2015)

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