There are a wide range of pension schemes available across the HE sector and for the majority of pre 92 Universities, USS is the pension scheme into which academic and academic related staff are enrolled, with a support staff scheme – historically these schemes have been defined benefit schemes very similar in structure to USS – being available in many cases for those employees who are not eligible to join USS.
The scheme’s mergers policy has been developed to give USS institutions a consolidation option which may, in the long run, help bring about cost savings or facilitate the streamlining of employment terms.
In this section of the website you will find a number of documents which, primarily, are designed to provide you with more information on the financial terms upon which the trustee company will consider a request for a merger. In addition to the financial information, you will find the legal note, a merger template and the letter which was recently issued to institutions to provide initial advice on the revised mergers policy.
The scheme’s mergers policy and associated documentation have been designed so that it is possible to consider the terms upon which USS can accept a merger – financial and legal – and importantly to calculate provisional figures with regard to how much the overall cost of the merger may be. This standardised approach has been carefully considered and in addition to it allowing institutions to make their own enquiries without needing to contact the trustee company, it should help keep costs to an absolute minimum as there is no need to draft actuarial or legal documentation as they have already been prepared.
Institutions considering merging their support staff scheme with USS are encouraged to review the documentation and consider whether it is a viable proposition before contacting the trustee company to register an interest. However this does not mean that the trustee company is unwilling to provide further information which isn’t available on the merger section of the website, or indeed to discuss the process in more detail. Contact details have been given at the end of this note.
The cost of a merger
Based upon past experience, the single largest cost is the requirement for the sponsoring employer to repair any funding shortfall upon completion of the merger. To explain further, should it be found that – based upon the actuarial basis as set out in the actuary’s letter – the candidate scheme’s assets are not sufficient to cover the liabilities, the trustee company will require the deficit to be made good upon completion of the merger, or at its absolute discretion, the trustee company may allow the cost to be spread over an agreed fixed term; in exceptional circumstances up to 20 years may be agreed. There is a minimum funding level which must be met even if deficit contributions are payable.
Although the demographic assumptions have been set by the USS scheme actuary, there is some flexibility in the discount rate to be used to value the quantum of the liabilities. The candidates scheme’s liabilities will be measured on one of two bases, I) the standard merger basis which will adopt a discount rate of gilts + 1%, or ii) in the case of self-administered trusts – subject to the trustee company being satisfied that the institution’s covenant is sufficiently robust – the discount rate will be based upon the scheme’s technical provisions basis. The trustee company will only be able to confirm the appropriate discount to be used after an application has been received and considered and therefore, it is recommended that when an institution is making initial calculations of the costs, it calculates the merging scheme’s liabilities on both the 1% and the technical provisions basis.
Given that the bulk of the merger costs will be in relation to the requirement to make good a funding shortfall, it is important that the actuarial information contained within this section is carefully considered, as the size of any funding deficit is likely to influence whether or not a merger is financially feasible.
There are other costs to consider and the institution should bear in mind that it will have to cover its own legal and actuarial costs and indeed any costs associated with the transfer and disinvestment of fund assets. The trustee company will also incur internal costs and therefore there is a one-off charge for that work which will be payable at the point at which the merger completes. A description of how the trustee company’s expenses are calculated can be found in the actuary’s note.
Application for a merger
Given the significant amount of resource required to implement the scheme changes, the trustee company will be unable to proceed with any mergers until the 2012/13 financial year and therefore the application form is not available just yet.
There is of course no reason why an institution cannot discuss the possibility of a merger with the trustee company prior to the application form being available, and as mentioned earlier if there are any questions, please contact the trustee company using the information provided below.
Contact details
Should you require any further information, please contact:
Steve Golden
Senior Pensions Policy Officer
0151 478 7016
steven.golden@uss.co.uk
Sean Greene
Pensions Policy Officer
0151 478 7064
sean.greene@uss.co.uk