Skip to content Skip to section navigation

Consultation Q&A 

Following many months of discussions regarding changes to Universities Superannuation Scheme (USS), a package of proposals recommended by the Joint Negotiating Committee (JNC) has been accepted by the USS trustee board, subject to the statutory consultation. The proposals are now being communicated and consulted upon, and a key part of the essential information is a substantial library of questions and answers (Q&As) about the changes, which have been developed to hopefully satisfy the vast majority of member questions. During the consultation, additional Q&As may be added to this website (any new additions will be made clear).

  • What does flexible retirement mean?

    Flexible retirement means being able to draw a portion of your retirement benefits, whilst continuing in pensionable employment and building up further pension rights.
  • How will the proposed flexible retirement arrangements work?

    In general terms, this means that you can take flexible retirement at any point from age 55 and draw between 20% and 80% of your accrued retirement benefits. To do so, you must reduce both your working hours and salary by between 20% and 80%. Your employer’s consent is needed for you to flexibly retire.
  • How many times can you take flexible retirement?

    You can draw a part, or additional part, of your benefits on a maximum of two occasions – on the third occasion you must retire in full and draw the entirety of your benefits.
  • What are the rules regarding how early you can draw benefits, and do reductions apply?

    With the consent of your employer, you can draw part of your benefits from age 55 at the earliest. Benefits will be actuarially reduced to account for the early payment, where applicable. For example, the normal pension age for service after 1 April 2011 is age 65, and therefore benefits which relate to this period of service that are drawn early (if, say, they were drawn from age 55) would be reduced to take account of the fact that they were paid (10 years) earlier than expected.
  • What happens to the portion of benefits that I have not drawn at the first retirement? Do they keep their link to my final earnings?

    This answer is based on the employer’s view of how the proposed changes would be implemented.
    The portion of benefits that are not drawn at the first opportunity would continue to be linked to your future pensionable salary. You would have to reduce your working hours (and salary) in order to access flexible retirement, by a minimum of 20% (eg a minimum of one day a week). As is normal for a part-time worker in USS, you would build up benefits at a slower rate for your future service, but the benefits which were undrawn at your flexible retirement would be based on the full-time equivalent salary.
  • Can I choose to take my lump sum at the time that I first draw a proportion of my benefits?

    Yes, you may elect to draw between 20% and 80% of your benefits overall, which means that you can draw between 20% and 80% of your benefits, which consist of a pension and of a lump sum.
  • Who is affected by this proposed change?

    This change affects active members, but note that it only affects the future service which is earned by active members on or after 1 April 2011. It affects members of the final salary section, and will also affect members of the proposed new section.
  • So, this change doesn’t affect current pensioners or deferred pensioners?

    No, this proposed change does not affect these categories of member (but see Q3 below).
  • There are other changes planned by Government to the way that pensions are increased – how do those affect USS members?

    There is a change that is likely to affect pensions in payment and current deferred pensions, which follows an announcement by the Government in its Emergency Budget in June 2010. In the announcement it stated that public service pensions (what are referred to as ‘official pensions’) and a number of state benefits would increase in line with the Consumer Prices Index (CPI) in future, from 1 April 2011, rather than Retail Prices Index (RPI). Historically, CPI has generally been lower than RPI. The USS rules state that pension benefits are reviewed annually in line with increases to ‘official pensions’. So, now the Government has changed the way in which official pensions are increased to be in line with CPI, USS will increase all pensions in line with CPI. Further information on this government change can be found in Supplementary Information questions 7 and 8.

    Quite separately, there will be a cap of 5% per year for benefits built up after 31 March 2011 as a result of the proposals which fall under this consultation.
  • How will these changes to CPI and the cap on inflation affect me in practice?

    With regard to the change to CPI, it depends what happens to inflation in the future. The long-term trend has been for CPI to be around 0.5% per year lower than RPI, therefore you might expect future pension increases to be lower. CPI and RPI are indices of price inflation and they measure the prices of a basket of goods and services. What’s included in this ‘basket’ differs between CPI and RPI, for example the CPI index does not include mortgage interest, which for many pensioners is not relevant. However, neither does it include council tax, which for many pensioners is one of their larger outgoings and which in the past has increased by more than RPI. There are also important differences between RPI and CPI in the way that weightings are allocated between the various items in the basket of goods.

    The proposed cap of 5% a year on pensions increases is a risk-mitigating measure for the scheme, as during times of high inflation (when the CPI is higher than 5% per year) there will be a cap on the amount of pensions increase that is paid. Most defined benefit schemes in the private sector have a cap applied to pensions increases.
  • When will the proposed changes happen?

    The planned change to introduce a cap on pensions increases of 5% a year will come into effect for service which accrues on or after 1 April 2011.

    Looking, quite separately, at the changes proposed by Government to switch from RPI to CPI for pensions in payment, the Government proposes that this will come into effect for increases awarded from April 2011.
  • What is the planned commencement date for the proposed scheme changes?

    The proposed changes are due to be implemented from 1 April 2011.
  • Will consideration be given to the response that I make to the consultation?

    Yes, your consultation response will be provided to your employer, and it will be forwarded on to the trustee company, which for legal purposes is the ‘person’ proposing to make the scheme changes. The trustee company must take into account the responses made by affected members (and, indeed, by their representatives) during the consultation. The responses from members will, by default, be provided on an anonymous basis.
  • Why are changes to the scheme needed?

    There is a section in the Member information notice which explains in more detail why scheme changes are necessary (a copy is available on this website – please visit the Library), but in summary the employers consider that the proposed changes are necessary to safeguard the long-term sustainability of the scheme. The scheme is not in crisis (though it is in danger of becoming unaffordable), and the proposed changes are designed to ensure that the scheme is sustainable and will continue to be so in the future.

    Further information relevant to this question may be found in Supplementary Information questions 1 and 12.
  • How have the interests of scheme members been represented in the discussions?

    The interests of scheme members have been represented during the negotiations by the University and College Union (UCU), which has a formal role under the rules of USS of representing members. UCU represents all members of the scheme, whether or not they are actual members of UCU.
  • I have heard that my accrued rights must be protected and cannot be changed as a result of these proposals. Is that right?

    Yes, by law any changes to a pension scheme cannot adversely affect a member’s accrued rights, without the member’s written consent. In addition, the rules of USS contain provisions which prevent adverse changes being made to accrued rights. Both the employers and the trustee company have taken legal advice to ensure that there is nothing in these proposals which affects the accrued rights of members.
  • Are final salary benefits being retained for existing members?

    Yes, under the proposed changes final salary benefits are being retained for existing scheme members. There will be different rights for new joiners to the scheme on or after 1 April 2011 – that section of the scheme will have benefits that are similar to career average revalued earnings benefits.
  • I hear that there is going to be a new CARE-like scheme for new entrants – is that scheme still USS or is that a different scheme?

    The proposed new CARE-like benefits are part of a new section of USS, alongside the final salary section. Both sections are a part of USS.
  • Is this the last of the changes?

    We can never predict what will happen in the future, but the reassurance we can give is that benefits you have already built up are protected; under current legislation benefits can only be changed for future service. The employers believe that the changes proposed are likely to be sufficient to put the scheme on a sustainable footing for the foreseeable future.
  • What do I do if I have problems logging on to the website?

    If you experience any problems logging on to the website, please check that you are using correct details. For example, the correct National Insurance number (as found on your National Insurance card or payslip) or the correct member number (as found on your latest service statement from USS), and your date of birth. You will also need to ensure that these details are entered in the correct format as described on the webpage (eg case sensitive or DD/MM/YYYY).

    If you still have problems logging on to the website, then you should contact your IT department, who should be able to help you resolve the problem. If the problem persists and the IT department cannot fix it, then please contact the pensions officer at your institution, who will escalate the problem for you.
  • I am a prospective member of the scheme - what will happen to any response that I submit online?

    If you have joined USS since the start of the consultation, or are a prospective member, you will need to enter your (i) full name (ii) date of birth and (iii) National Insurance number. However, you will also need to confirm the name of your institution to help your employer confirm that you are an eligible member for the purposes of the consultation. You will be able to express your views and comments on the proposed changes using the online response form, and your eligibility to have those views formally taken into account will be confirmed by your employer at a later date.
  • Is there a facility to save my response if I am unable to complete it in one sitting?

    You can provide a response on the proposed changes only once. However, you may prefer to complete your response over more than one sitting. It is possible to save your part-completed response, however, you will need to confirm your email address in order to use this facility. Please note your responses will still be provided to your employer and the trustee company on an anonymous basis.
  • I see that the proposals involve an increase to the employee contribution rate to 7.5% - what is the current rate of contribution?

    The current rate of contribution is 6.35% of salary, so the change represents an increase of 1.15% of salary.
  • What will be the real cost from take-home pay?

    The basic cost is 1.15% of salary, however, if you are a taxpayer you will receive tax relief, which means that the net cost to you will be lower. There is a contribution modeller on this website which enables you to calculate the exact cost after having input your salary details.
  • Is it possible to see some examples of the net cost of the proposed contribution increase?

    The table below sets out some illustrative costs: Please note that if you are in a Salary Sacrifice for pension contributions arrangement, savings will in many cases be slightly higher.

    Salary (pa) Cost from take-home pay at 6.35% (a month) Cost from take-home pay at 7.5% (a month) Impact on take home pay (a month)
    £10,000 £36.00 £43.60 £7.60
    £15,000 £50.00 £62.00 £12.00
    £30,000 £94.00 £117.00 £23.00
    £45,000 £139.00 £173.60 £34.60
    £60,000* £139.00 £173.00 £34.00
    £75,000* £186.00 £229.25 £43.25

    * 40% tax relief is assumed to have applied to the entire contribution
  • Will the employee contribution remain at 7.5% in the future?

    It is likely that the new employee contribution rate of 7.5% will remain for a few years. However, it is proposed that there are also new cost-sharing arrangements, which mean that if the overall contribution rate required to be paid to the scheme increases in the future, then that increase would be shared on the basis of 35% (of the increase) becoming payable by employees and 65% becoming payable by the employers.
  • I joined the scheme after the age of 60 – do I need to continue to pay the additional 1% employee contribution that is currently charged?

    No, from 1 April 2011, a member who joins, or has joined, the scheme aged over 60 will not be required, as currently, to pay additional contributions to the scheme in excess of the ordinary employee contribution.
  • Do the new cost-sharing arrangements apply to future decreases of costs as well as to increases?

    Yes, the idea is that future cost increases will be shared, but if costs go up and then come down again at some point in the future, then any such decrease in costs would be shared too. So, at the commencement of these arrangements employees pay 7.5% and employers pay 16% (a combined contribution of 23.5%) to the final salary section. If there is, for example, a requirement for a 2% increase to contributions in the future (assuming no other agreement is made), that increase would be shared in the ratio of 35:65 – so employee contributions would increase to 8.2% and employer contributions would increase to 17.3%. If, subsequently, there were a 1% reduction in the overall contribution rate, the 35:65 ratio would still apply (in the absence of any further agreement) and employee contributions would reduce to 7.85% and employer contributions to 16.65%. You should note, however, that employee contributions cannot reduce below 7.5% (for the final salary section).
  • What impact will the state pension age have on USS?

    You may already know about Government plans to increase state pension age in the future. The proposed change states that the normal pension age under USS will change in line with the changes to state pension age. The state pension age is the age at which people are entitled to their basic state pension and (where eligible) any additional state pensions (the latter often referred to as SERPS or state second pension).
  • What impact will this have on USS benefits?

    This means that even if you retire at age 65, after the date when state pension age has increased above 65, some portions of your benefits would be actuarially reduced. However, things are not changing for some time yet – this is a proposal which is intended to change things for the long term.
  • So, when are changes planned to be made to the state pension age?

    The current state pension age is 65 for men, and for women it has traditionally been age 60. However, women’s state pension age has started to transition to age 65. The Coalition Government announced in October 2010 that state pension age will increase to 66 for both men and women by April 2020. The Government is also considering further, future increases to state pension age.
  • How will the changes to state pension age affect my USS pension?

    They will affect your USS pension in a similar way to the NPA65 changes currently proposed. They mean that the new NPAs (beyond age 65) will apply to future service which accrues after the effective date of the change in state pension age. So, for example, if, as the Government proposes, the state pension age changes to age 66 for both men and women by April 2020, all USS service which accrues on or after 1 April 2020 will be actuarially reduced if retirement takes place before age 66 (but note that it is only that portion of service, the part which is post April 2020, which would be so reduced).
  • What if the Government changes its plans for state pension age? I hear that they have already suggested that age 66 might be brought forward to 2016?

    The Government announced in October 2010 that state pension age will increase to 66 for both men and women by April 2020 (see Q3 above). The proposed changes to USS are designed so that the USS changes to normal pension age move in line with future changes to the state pension age, so long as this is lawful.
  • Who will be affected by this proposed change?

    All new entrants to USS on or after 1 April 2011 will join the new section of the scheme The first thing to note is this isn’t a new scheme as such, it’s one scheme for all members (ie USS) but new members will join the new section of the scheme.
  • If you are a member of the scheme as at 31 March 2011, and then subsequently leave the scheme and re-join it, which section do you re-join?

    If you are a member of USS as at 31 March 2011, leave and take up further employment under USS within six months of having left employment, then you will re-join the final salary section of the scheme.
  • Are there any circumstances in which a member may take a longer break from employment but still return to the final salary section of the scheme?

    Yes, there are special circumstances in which a break of up to five years can occur whilst still allowing members to return to the final salary section. If you leave employment and before leaving that employment your employer certifies to USS that there is a reasonable expectation that you will return to employment with that same employer (or an associated employer) within a period of five years, then in such circumstances – if indeed you do return to such employment – you will re-join the final salary section.

    This matter is also covered in Supplementary Information questions 5 and 6.
  • If a person is currently a deferred member, does this mean that if they re-join the scheme they will join the new section?

    Yes, a person who is a deferred pensioner as at 31 March 2011 who re-joins the scheme at a later point will join the new section, unless they re-join USS on or before 30 June 2011 (in the latter case the member would re-join the final salary section).
  • I am currently a member of the final salary section. In the future, if I leave and then re-join the scheme after having had a break of longer than six months (and without qualifying under the special five-year rule mentioned in A3), I understand that I wi

    They will continue to be treated as deferred benefits, which will be revalued in line with inflation (which will be CPI from April 2011), with a cap of 2.5% a year applied in respect of service that was earned on or after 1 April 2011. This is an important change, as in the past members who left and then re-joined the scheme had the opportunity to link their past benefits to future final salary. Under the proposals, that ability to link final salary benefits will be lost.
  • How does the new section work?

    The formula for calculating benefits accruing each year under the new section of the scheme will be familiar, which is:-
    Pension – 1/80 x salary for each year of membership
    Plus
    Lump sum – 3 x pension
    However, the value of these benefits is increased each year, whilst in active service, through to retirement based on increases to price inflation (see Q7 below) and are no longer linked to your salary close to retirement.

    Further information on the accrual rate can be found in Supplementary Information question 10.
  • How are benefits inflation-proofed from year to year?

    It is proposed that increases in line with CPI will be awarded in full, up to a 5% per year threshold. If the CPI inflationary increase is more than 5% per year, then one half of that additional increase (the excess over 5%) will be applied up to an overall maximum annual increase (an overall cap) of 7.5% per year.

    Please refer to Supplementary Information question 9 for related information on this point.
  • Do you have examples of how the proposed new section will work?

    Yes, the following provides a description of the way that the proposed new arrangements will work:

    The example below is based on a member with exactly four years’ service with a salary in Year 1 of £40,000, rising to £46,000 in Year 4.

    Year Salary Pension calculation Amount of pension earned in the year Plus previous year’s pension revalued Cumulative total pension accrued
    1 £40,000 1/80 X £40,000 £500.00 – £500.00
    2 £42,000 1/80 X £42,000 £525.00 £512.50 (£500.00 + 2.5%, total pension earned at the end of year 1 revalued) £1,037.50
    3 £44,000 1/80 X £44,000 £550.00 £1,063.44 (1,037.50 + 2.5% total pension earned at the end of year 2 revalued) £1,613.44
    4 £46,000 1/80 X £46,000 £575.00 £1,653.78 (£1,613.44 + 2.5% total pension at the end of year 3 revalued) £2,228.78

    So, after four years’ membership in the new section, the member has built up a pension of £2, 228.78 a year, including revaluation.

    Tax-free lump sum

    In addition to the standard pension, members of the new section will also be entitled to three times their pension as tax-free cash.

    Pension Tax-free cash calculation Tax-free cash
    £2,228.78 £2,228.78 X 3 £6,686.34

    So, in this example, after 4 years’ membership, the accrued pension is £2,228.78 per year, plus a tax-free lump sum of £6,686.34.

    All pension values are shown per annum. In this example, the assumed rate of revaluation of the benefits is 2.5% per year (reflecting an assumed rate of change in the Consumer Prices Index).
  • What rate of employee contribution will be paid by members of the new section?

    Members of the new section of the scheme will be required to pay a contribution of 6.5% of salary.
  • Can I switch between the new section and the final salary section, for example if I am a member of the new section in the future, can I switch to the final salary section (perhaps by paying more)?

    No, there will be no switching option for members.
  • How will additional voluntary contributions (AVCs) work under the new section?

    Members of the new section will be able to buy extra pension (and extra lump sum) expressed as a cash amount (a little different to the ‘added years AVCs’ arrangements which exist under the final salary section). Members can still choose to pay into the money purchase AVC facility with Prudential.
  • What about the benefits payable upon death, in particular the lump sum death-in-service payment?

    The death-in-service lump sum payment will remain at three times the annual rate of salary as at the date of death, whilst the accrual rates for deciding other death benefits – and the terms for defining eligible recipients – will remain exactly the same (although the amounts will be based on the CARE like formula rather than the final salary formula).
  • How will transfers-in work under the new section?

    Where a person becomes a member of the new section, they will continue to be able to transfer-in pension rights from other pension arrangements – the credits provided in USS are to be in the form of a pension and lump sum which is expressed as a cash amount (and not as a period of service). (Subject to Q14 below in relation to public sector transfer club transfers)
  • What if a new section member has previous rights in a scheme that is part of the public sector transfer club?

    Where a member of the new section has previous rights with a scheme that is a member of the public sector transfer club, it is proposed that such transfers can be accepted by USS (at the member’s request) with the credits providing final salary related benefits. In this case, the member will have USS rights in the new section which relate to their future service, whilst also having rights in the final salary section which relate solely to the transfer in.
  • How will incapacity benefits work under the proposed new section?

    The total and partial incapacity benefit provisions will continue to exist, although the actual benefit outcomes will be calculated under the CARE like formula rather than the final salary formula. Enhancement under total incapacity would be calculated in a very similar manner, however, the enhancement would be based on the amount of CARE like benefits earned in the final year before total incapacity retirement. There are likely to be special rules for those who have had to reduce their hours, and therefore their pension, shortly before retirement because of their illness/condition (similar provisions to those that exist currently).
  • How would the proposed increase of Normal Pension Age (NPA) to age 65 from 1 April 2011 affect members?

    The scheme has had a normal retirement age of 65 since it was established in 1975, however, in practice, all members are currently able to draw an unreduced pension from age 63½ for service from 1 April 1995. Alternatively, an unreduced pension can be paid from age 60 if the member’s contract of employment states that their retirement age is 60, or if they have their employer’s consent to retire (such consent not to be unreasonably withheld). So, in reality, many members have been able to draw their benefits unreduced from age 60. With effect from 1 April 2011, the NPA will become age 65 for all members of the scheme (ie existing members and future new entrants from 1 April 2011), so that in respect of service from 1 April 2011 an unreduced pension would be payable from age 65 only.
  • Does the change to NPA mean that I will have to work until I’m age 65?

    No. In fact, with the changes there will be a right to retire early from age 55 with reduced benefits. In the past you may have planned on retiring at age 60 and may have anticipated receiving unreduced benefits – in the future there will be reductions applied to the part of your benefits that relates to service on or after 1 April 2011.
  • What is meant in this context by the term 'reductions', or 'actuarial reductions'?

    Actuarial reductions (or simply ‘reductions’) are percentage reductions applied to benefits because they are being paid earlier than intended. When benefits are paid early, other things being equal they will be paid for longer and are therefore more costly. Reductions allow the benefits to be paid early, without causing additional costs. For service which accrues from April 2011, it is proposed that benefits will be reduced if they are paid before age 65. So, if a person retires at age 60, they would have a reduction (in relation to their post April 2011 service) which reflects the fact that the portion of benefits is paid five years early. The actual reduction may vary over time and depends on the number of years early but currently, as a rule of thumb, reductions are of the order of 4% for each year early, so the reduction in that case would be approximately 20%. This is a permanent reduction to benefits for the whole duration for which they are paid, which reflects their early payment – the reduction is not, for example, restored from age 65.
  • Does the change to NPA affect all of my service, or just the portion of service that is post April 2011?

    The proposed changes only apply to service that accrues on and after 1 April 2011.
  • Are all members affected by this change?

    Yes, unless they are age 55 or over on 1 April 2011. If a member is 55 or over on 1 April 2011 then they are exempt from this change only.
  • Could you give an example of the impact on members’ benefits of the NPA change?

    Unless you are an exempt member (see Q5 above) (in which case you will be unaffected by the proposed change) this means that for service built up in the scheme after 31 March 2011, that part of the benefits will be payable on an unreduced basis from age 65. If a member draws them earlier, the benefits will be reduced to reflect the fact that they have been paid early.

    Take the following example – Peter joined the scheme on 1 April 2002 and plans to retire on 31 March 2017 at age 60 when he will have 15 years of pensionable service. His benefits would be based on 15 years’ pensionable service and would be calculated in ‘tranches’ as follows:

    • 6 years of service (from 1 April 2011 to 31 March 2017) would have an NPA of 65, so a reduction would apply to allow for the benefit being paid 5 years early (i.e. the number of years he is retiring before age 65) – assuming the current early retirement factor continues to apply, the reduction to this tranche would be 20.7%; and
    • 9 years of service (from 1 April 2002 to 31 March 2011) – benefits in respect of this tranche would be unreduced where Peter’s employer consents to his retirement (consent not to be unreasonably withheld).
  • You have described in Q6 what happens with the part of my service that falls after 31 March 2011 – what about the main part of my service which is pre-April 2011?

    The pre-April 2011 service is treated just the same as before. Benefits for that service can be drawn on an unreduced basis from age 60, if the member either has a contractual pension age of 60, or has their employer’s consent to retire at that age (such consent from the employer not to be unreasonably withheld).
  • What is a ‘contractual pension age’?

    A contractual pension age is a term or condition of employment which confers a right to retire from an age which is earlier than would otherwise be the case under the scheme rules, and reflects a provision that is contained within a proportion of contracts of employment which are held by USS active members.
  • How do I know if I have a ‘contractual pension age’?

    USS asks institutions to specify whether a member has a contractual pension age that is earlier than age 65 (if one exists, it is normally age 60), and this information was displayed on the most recent service statements issued to active members by USS earlier this year.
  • I have previously transferred-in pension rights from another pension scheme – how are they affected by these changes?

    This depends on whether your transfer-in was received before or after April 2009. If the transfer-in was received before 1 April 2009, then those transfers-in will provide unreduced benefits for retirement from age 60. If your transfer-in was received after 31 August 2009, then the transferred-in benefits are payable on an unreduced basis from age 65 (and therefore if you retire before age 65 there will be actuarial reductions applied to this portion of your benefits).

    Note that if your transfer-in was received between 1 April 2009 and 31 August 2009, you were given the option to receive unreduced benefits from either age 60 or 65.
  • Will employers wish to change the contracts of employment of employees who have a contractual pension age of 60?

    That will be a decision for your employer – but if those changes happen on or after 1 April 2011, it will not change the rights that you have (if indeed you have a contractual pension age of 60) for service prior to April 2011.
  • What if I am not an exempt member and want to retire on (or after) reaching age 60?

    Please refer to the benefit modeller in order to obtain an estimate of the benefits that would be available to you.
  • How would the proposed changes to normal pension age affect me if I wish to retire before reaching age 60?

    The calculation of benefits where a person draws benefits before age 60 is not straightforward. Take the following example – Susan joined the scheme on 1 April 1995 and plans to retire on 31 March 2015 at age 57. Her benefits would be based on 20 years’ pensionable service and would be calculated in ‘tranches’ as follows:

    • 4 years of service (from 1 April 2011 to 31 March 2015) would have an NPA of 65, so a reduction will apply to allow for the benefit being paid 8 years early (i.e. the number of years she is retiring before age 65). Assuming the current early retirement factor continues to apply, the reduction on this tranche would be 28.5%; and
    • 16 years of service (from 1 April 1995 to 31 March 2011) would have an NPA of 63½*, so a reduction will apply to allow for the benefit being paid 6½ years early (ie the number of years she is retiring before age 63½). Assuming the current early retirement factor continues to apply, the reduction on this tranche would be 24.2%.

    * The rules regarding NPA are complex and age 63½ is used in this example because that is the earliest age (in the absence of special circumstances such as incapacity) that members are currently entitled to retire on unreduced benefits, where a member does not have an earlier ‘contractual pension age’.
  • What will happen if I retire on incapacity grounds?

    If you do not have a break in membership ending in April 2011 or later, you will be entitled to immediate benefit in the same circumstances and on the same terms as under the existing rules: see Factsheet Ten.
  • I’m not currently a member of the scheme (I chose not to join when I had the opportunity to do so). Can I join the final salary section of the scheme before 1 April 2011?

    Yes you can. We would encourage anyone in this situation to consider their options very carefully. You will not get another chance to join the final salary section after April 2011. If you do wish to join before 1 April 2011, you must act quickly to make arrangements for pension deductions to start before then (and this all must take place before April 2011). Please note that you may be required to complete a declaration of health, and a satisfactory declaration may be a condition of entry to the scheme.
  • I don’t think I can afford the higher contribution rate of 7.5%.

    The increase in the gross contribution is 1.15% of your gross salary (note that overtime is not included as salary for this purpose) and you receive tax relief on this, so although not insignificant, the proposed extra contributions are perhaps not quite as bad as you might think. Take a look at the examples earlier in this document (see Q3 in ‘Increased employee contributions and new cost-sharing arrangements’ above).

    In return, you’ll receive a pension for life and a tax-free lump sum of three times that pension as standard, based on your service and salary at retirement. Additionally, remember the additional benefits that you receive: life cover of three times salary, pensions for your spouse/partner and eligible children if you die, and protection if you find yourself affected by ill-health.
  • The new section is cheaper. Can I join that scheme rather than stay in the final salary scheme?

    No, there is no option to enable a member to switch sections.

    The only way you would be included in the new section is if you opt out of the current scheme and re-join more than six months later. Of course, during those six months you would not be building up any pension, your final salary benefits would then be deferred benefits and you would not be covered for the death-in-service benefits.
  • I currently pay added years AVCs – what about my existing added years contract?

    This answer is based on the employer’s view of how the proposed changes would be implemented.
    These would be unaffected by the proposed changes. If a member chose to pay into an added years contract to retire at 60, then they would still be able do so and receive the full pension from their added years. They would also be able to continue with their existing contract. Of course, if they leave the scheme, their contract would end.
  • What about those members who are ex-NHS mental health officers or ‘special class’ members?

    These members – who form a very small cohort within USS – have a right for their pension to be paid from 55 under special obligations made at the time of the transfer from the NHS, and their benefits are unaffected by this change.

    Please note that these members transferred from the National Health Service Pension Scheme to USS with special rights under the terms of College of Health transfers in the 1990s.
  • What will happen to my pension if I reach the age of 65 or attain 40 years' service and remain an active member in the scheme?

    From 1 April 2011, all scheme members will be entitled to continue in pensionable membership of the scheme after age 65 on normal USS benefit accrual terms. In such cases, if the member chooses to continue to contribute, his/her employer will also be required to contribute to the scheme.

    This following part of this answer is based on the employer’s view of how the proposed changes would be implemented. From 1 April 2011, a scheme member would be entitled to continue in pensionable membership of the scheme after accruing 40 years’ pensionable service on the ordinary USS benefit accrual terms, and his or her employer would be required to continue to contribute to the scheme, after that point, if the member chooses to continue to contribute to the scheme paying the ordinary member contribution rate.
  • Where could I get independent financial advice?

    Staff at institutions and at USS can provide information about the scheme but cannot provide financial advice. We recommend that if you need financial advice you contact a financial adviser. A list of advisers may be found at the following website link:
    http://www.uss.co.uk/SchemeGuide/FinalSalaryBenefitssection/maximisingyourpension/independentfinancialadvice/Pages/default.aspx
  • Who will be affected by this proposed change?

    This proposed change will affect the future service of active members on or after 1 April 2011. Even in that case, it will only have an effect if those members leave the scheme early after 1 April 2011 and become entitled to deferred benefits. Deferred benefits are revalued from the day a member leaves the scheme until they are brought into payment, and this proposed change would mean that – for service on or after 1 April 2011 – the rate of revaluation would be in line with CPI up to a cap of 2.5% a year.
  • Are the normal terms for the revaluation of deferred pensions also affected by the Government’s budget announcement?

    Yes, the general switch from RPI to CPI announced by Government will also affect the rate of revaluation of deferred pensions in the future from April 2011 (all future increases, including for current deferred pensioners, will be in line with CPI). However, the Government changes are quite separate to the proposals that are subject to the information and consultation now being undertaken.
  • What are the changes that are proposed to benefits on redundancy?

    The proposals state that where a person retires on grounds of redundancy on or after 1 April 2013 (note April 2013, and not April 2011), the benefits payable will be actuarially reduced. At the current time benefits on redundancy are payable without actuarial reduction to a member aged 55 or more (or earlier protected pension age) who has five or more years’ pensionable service.
  • So, if I am made redundant on or after 1 April 2013, what would my benefits be?

    In the event that you are made redundant on or after 1 April 2013, then actuarially reduced benefits would be payable. This means that your benefits would be reduced by a percentage for each year between your age at your early retirement and your NPA for each tranche of your service (also see Q3 in ‘Normal Pension Age increasing to 65’).
  • Does the employer have the option to augment the benefits payable in such circumstances?

    Yes, this will be at the discretion of the employer.
  • If I am an existing member of USS, do I continue to stay in the same pension arrangements?

    Yes, you remain in the final salary arrangements so long as you remain in pensionable employment.
  • What if I leave employment with my current employer, and then take up employment with another USS participating employer?

    If you leave employment on or after 1 April 2011, and then take up a further employment with a USS participating employer within six months of the date of leaving, you will re-join the final salary section of USS.
  • Are there any circumstances in which a member may take a longer break from employment but still return to the final salary section of the scheme?

    Yes, there are special circumstances in which a break of up to five years can occur whilst still allowing members to return to the final salary section. If you leave employment and before leaving that employment your employer certifies to USS that there is a reasonable expectation that you will return to employment with that same employer (or an associated employer) within a period of five years, then in such circumstances – if indeed you do return to such employment – you will re-join the final salary section. It is anticipated that this will be used in circumstances such as authorised career breaks, sabbaticals, agreed periods of employment outside the sector with a pre-agreed return to the employer, etc (this list is not exhaustive).
  • The UCU has said that the financial state of the scheme is such that these changes are not necessary. Why does the USS Board disagree?

    The package of changes put forward by the employers has been agreed by the USS Joint Negotiating Committee (JNC) and these are the proposals accepted by the USS trustee board, subject to the consultation underway. The USS trustee board is required by the scheme rules to implement changes recommended by the JNC (subject to the statutory consultation requirements), unless those changes appear to the trustee board to be undesirable for specified reasons. This was the culmination of over two years of discussions and negotiations between the employers and UCU, on reforms to secure the future of the USS. The employers and UCU had taken into account funding information and data provided by USS. At the end of the negotiation process UCU accepted that it was necessary to reform USS but in the employers’ view UCU’s proposals fell well short of what was needed to address severe long-term cost pressures and secure the future of the scheme. The changes proposed by the employers are designed to bring the costs of future service benefits in USS under control, which is rightly a matter for the employers and other stakeholders. (USS’s objective is to ensure that the past service ‘accrued’ – benefits can be paid.)
  • I understand that the UCU made some alternative proposals. What were these? Where can I see a comparison between the two sets of proposals? Why did the USS Board not adopt the UCU proposals? Why is the USS Board not consulting on the UCU proposals?

    A copy of UCU’s proposals is available on its website at http://www.ucu.org.uk/media/pdf/n/s/uss_ucu_counter_proposal_jun10.pdf.

    The UCU’s and Employers’ Pensions Forum’s proposals were presented to the USS Joint Negotiating Committee (JNC) in July 2010 and that committee duly voted in favour of the EPF proposals. The JNC’s recommendation was accepted by the USS Board at its meeting in late July 2010. Under the rules of USS the board must take steps to implement such a recommendation unless the recommended changes appear to the trustee board to be undesirable for specified reasons. It is therefore the employers’ proposals that are being consulted on, as they were the proposals decided on by the JNC and accepted by the USS board.
  • Why is there no national ballot on the proposals?

    The decision making process within USS – which has long been accepted by all parties – is that a Joint Negotiating Committee (JNC) decides on matters relating to changes to future benefits. The members are represented on this JNC by UCU, and indeed it (formerly as AUT) has fulfilled this role since the scheme’s inception in 1975. There is no national ballot because that is not the agreed decision making process – although of course there is a process of consultation which must be followed under statutory regulations (and indeed the employers have gone further than this process by consulting with individual affected members as well as their representatives, rather than just with their representatives – the latter is the actual statutory requirement).
  • What is the equality impact of the proposals?

    There may be a requirement upon institutions to undertake an Equality Impact Assessment as a result of the proposed changes, and guidance has been issued to employers by the Employers Pensions Forum on this point.
  • Won’t the introduction of a CARE scheme for new and rejoining members adversely affect those taking career breaks, and researchers who may have gaps between their contracts?

    It is proposed that the new CARE-like proposals will apply where an existing member of the final salary section leaves the scheme with a break in employment of greater than six months. However, it is important also to note that special terms are proposed to be made available where an existing member is to leave their employment and there is a reasonable expectation of a return to duty with that employer or with an associated employer – in such cases, subject to the appropriate certification by the employer, the existing member would be permitted to return to the final salary section if the return is within a period of five years. If members and/or their representatives have views/comments about aspects of the proposals, they are encouraged to express them during the period of consultation.
  • What is the likely effect of the change from RPI to CPI capped at 5% for future service?

    The ‘effect’ of the change could be taken to mean either (i) the effect on overall scheme costs or (ii) the effect on member benefits. It is also important to note that the change from RPI to CPI is a government change (however the introduction of the cap, for future service, is of course a proposed scheme change).

    In terms of effect on scheme costs, the EPF has produced further information on the projected change to the future service contribution rate on its website: www.employerspensionsforum.co.uk

    With regard to the second effect on member benefits, it is considered that the proposal is straightforward and illustrations are unnecessary. However, it would be possible to produce an analysis of the effect of the cap if an assumption is made as to the future levels of CPI. A common view is that CPI as presently defined, on average, might be 0.5% p.a. or so lower than RPI over the long term.

    In terms of describing the effect on member benefits, it is an impossible question to answer fully without carrying out sophisticated modelling on a member by member basis. Clearly the effects for individual members will depend, critically, on their level of pension and the balance of their Guaranteed Minimum Pension (GMP)/non-GMP benefits. It will also depend, for any individual, on their longevity as there will be a cumulative, long term, effect on the benefits year on year due to compounding. Proper modelling would also take into account the possibility that CPI might exceed RPI in some years and would also build in to it the effect of the 5% cap which is likely to bite from time to time. Notwithstanding these important caveats it might help to consider the effect over a 10 and 20 year period for a pensioner on the assumption that RPI is 0.5% higher than CPI each year. The cumulative effects after 10 and 15 years are as follows:

    After 10 years After 20 years
    £100 pension increase at RPI (3% p.a.) £134 £181
    £100 pension increase at CPI (2½%p.a.) £128 £164

    Clearly the differences between the RPI and CPI compounded figures will depend on the actual levels of RPI but broadly speaking the pension in year 10 might be expected to be 5% higher under the RPI increases (and 10% higher after 20 years) than under the CPI increases. It is important to note that these are the point differences in the pension in year 10 and year 20. There will also be differences each year that pension is drawn but one might say that for a pensioner who actually draws pension for 20 years before dying the average difference in total pension drawn each year would be in order of 5% (zero in Year 1, 10% in Year 20).

    The above is based also on the assumption that RPI outstrips CPI by 0.5% per annum. Whilst that might well be an assumption used by actuaries/trustees for funding purposes, general consensus would have it that 0.5% is likely to be on the low side; if an assumption of, say, 0.8% per annum were used (for the difference between RPI and CPI) then the benefit differences would be proportionately higher. Again, for the avoidance of doubt, the effect of the 5% cap has been ignored in the above crude analysis. Clearly, were inflation to spike at say 15% for just one year, for example, the 5% cap would have a 10% diminution effect and be ‘more important’ than the CPI switch alone. Conversely, if inflation remains below 5%, the cap would have no effect at all.
  • What is the likely effect of the change from RPI to CPI capped at 2.5% for deferred pensions?

    The ‘effect’ of the change could be taken to mean either (i) the effect on overall scheme costs or (ii) the effect on member benefits. It is also important to note that the change from RPI to CPI is a government change (however the introduction of the cap, for future service, is of course a proposed scheme change).

    In terms of effect on scheme costs, the EPF has published further information on the projected change to the future service contribution rate on its website: www.employerspensionsforum.co.uk

    With regard to the second effect on member benefits, it is considered that the proposal is straightforward and illustrations are unnecessary. However, it would be possible to produce an analysis of the effect of the cap if an assumption is made as to the future levels of CPI. A common view is that CPI as presently defined, on average, might be 0.5% p.a. or so lower than RPI over the long term.

    In terms of the effect on member benefits, similar important caveats apply to the answer to this question as to the question above for pensioners. The starting pension (ie the pension at normal retirement age) for a deferred pensioner will be critically dependent upon the period over which the CPI/RPI revaluation applies. Someone who left service and became a deferred pensioner 20 years before retirement age will see his starting pension lower/higher by about twice the amount than a counterpart who became a deferred pensioner only 10 years before normal retirement age. Ignoring the effects of the 2½% cap, a £100 deferred pension at leaving would revalue after 10 years to £134 (or after 20 years to £181) assuming RPI revaluation of 3% per annum. The corresponding starting pensions assuming CPI revaluation (at 2½% per annum) would be £128 and £164 respectively. Those starting pensions would then increase in retirement at CPI or RPI and suffer the same sort of diminution as articulated above in respect of the pensioner. Broadly speaking, therefore, a deferred pensioner who has 20 years in deferment and then draws pension for 20 years might expect (assuming RPI is 0.5% per annum higher than CPI) to, on average, suffer a diminution of total pension drawn in the order of 15% (the starting pension being some 10% lower and then the average effect of lower pension increases for a period of 20 years being a further 5% diminution).

    Again, if a more ‘best estimate’ assumption that RPI will exceed CPI by some 0.8% is made then the above 15% diminution would become some 27%.

    Again, for the avoidance of doubt the effect of the 2.5% cap has been ignored. People with a shorter period in deferment would lose out by a smaller amount; people with a longer period in deferment will lose out by a greater amount.
  • What is the likely effect of the introduction of CARE when combined with the change to capped CPI?

    The EPF has published further information on the projected change to the future service contribution rate on its website: www.employerspensionsforum.co.uk
  • Why has an accrual rate of 1/80 been chosen for CARE, rather than a more generous one?

    The accrual rate of 1/80th pension for the new CARE-like structure is supplemented by a 3/80ths lump sum. The changes proposed are intended by the employers to allow the employers to meet the costs of modifying the scheme’s investment strategy by changing the asset mix towards less volatile, risk reducing assets with lower returns than equities. The proposed CARE-like structure has been put forward at the 1/80th and 3/80ths level so that, in terms of overall costs to the employer, it enables this switch to lower risk assets to take place whilst reducing the likelihood of employer contributions being raised above 16%.
  • Is the real agenda of the employers, as has been alleged, to reduce their contributions to 10%?

    No. The employers are committed to continuing to pay their existing contribution of 16% (a rise from 14% in October 2009) for the foreseeable future. This will be necessary to meet the additional costs arising from the plan to modify the scheme’s investment strategy, with a shift of the asset mix toward risk reducing assets with lower returns than equities. This is in the employers’ view an essential part of the changes needed to ensure the long term sustainability of the scheme and reducing the recent volatility in the value of the fund.
  • What is the effect on the current funding levels of the scheme of the reduction to 14% in the employers’ contribution after 1996?

    The requirement on employers to pay an 18.55% contribution, between 1983 and 1996, was in part due to the need to fully fund the service which was credited to individuals who transferred their policies from the former Federated Superannuation Scheme for Universities (FSSU) during the late 1970s. As such, the 18.55% contribution level was over and above the normal cost of future accrual in order to pay for this additional funding of the service credited in respect of former-FSSU policies. Also, early retirements were entirely funded through the employer contribution rate, and not through an additional early retirement funding charge (which has been in place since 2006). Finally, it is not the case that the employers have paid insufficient contributions in to USS in previous years – the contribution rate has been set fully in accordance with the professional actuarial advice received, and indeed when many employers in the private sector did take ‘contributions holidays’ during periods of strong scheme funding, the USS employers did not do so.