If you change jobs and move out of higher education you automatically cease to be a member of USS and can’t continue to pay into the scheme. You have various choices as to what to do next.
If you have 2 or more years' (calendar length) membership in USS we work out your accumulated pension benefit using the following formula:
Pension = 1/80th x salary for each year
Tax-free cash = 3 x pension (as calculated above)
Following example based on a member with exactly 4 years’ service with a salary in Year 1 of £40,000, rising to £45,000 in Year 4.
| |
Pension Calculation |
Pension for year |
Banked pension |
| Salary in year |
|
|
|
| £40,000 |
1/80 x £40,000 |
£500.00 |
£500.00 |
| £42,000 |
1/80 x £42,000 |
£525.00 |
£1,025.00 |
| £43,500 |
1/80 x £43,500 |
£543.75 |
£1,568.75 |
| £45,000 |
1/80 x £45,000 |
£562.50 |
£2,131.25 |
| TOTAL |
|
|
£2,131.25 pa |
So, after 4 years’ membership in the Career Revalued Benefits section the member has built up a pension of £2,131.25 pa, however that’s not quite the full calculation as we now need to add the effect of the increases to official pensions to the figures. Please note we have simply used example rates of increase in the following calculations, 2 % represented by 1.02, for example.
| Pension for year |
Inflation calculation |
Banked pension |
| £500.00 |
£500.00 x 1 |
£500.00 |
| £525.00 |
(£500.00 x 1.02) + £525.00 |
£1,035.00 |
| £543.75 |
(£1,035.00 x 1.03) + £543.75 |
£1,609.80 |
| £562.50 |
(£1,609.80 x 1.015) + £562.50 |
£2,196.45 |
| TOTAL |
|
£2,196.45 pa |
Therefore, the total pension after 4 years is worth £2,196.45 pa at the date the member leaves.
You can draw these benefits from the Normal Pensions Age, currently 65. You can take your pension earlier, but the pension will be reduced to account for the early payment, the reduction is approximately 4% for each year of early retirement.
If you have less than 2 years’ (calendar length) membership you have 2 options:
- Receive a refund of your contributions, less tax and a deduction to reinstate you in the State Second Pension scheme, or
- Receive deferred benefits based on your contributions only.
Here’s an example of a refund:
If you had paid gross contributions amounting to £1,015 over a period of 1 year 261 days, you would receive a refund of £595.40 calculated as follows:
|
|
£1,015.00 |
Contributions |
|
minus |
£292.00 |
Payment to S2P |
|
|
£723.00 |
Taxable amount |
|
minus |
£144.60 |
20% tax |
|
|
£578.40 |
|
|
plus |
£17.00 |
Interest |
|
|
£595.40 |
Net Refund |
Please note:
If you have been part of a salary sacrifice arrangement, offered to you by your employer, for the period of any sacrifice, you will not be entitled to a refund of your contributions as these will have been paid for you by your employer as part of the salary sacrifice arrangement.
Transfer benefits to another pension scheme
However long you have been a member you can transfer the value of your benefits to another pension scheme in the UK and in many cases overseas. The calculation, whether or not you have more than 2 years’ membership, is based on the full value of your benefits, using the traditional 1/80th formula for each year of salary.
Please go to the transfer out section for more details.
Rejoining
If you rejoin USS you will rejoin the Career Revalued Benefits section of the scheme. You will simply start to build up more pensions, adding to the pension you had built up from any earlier period of service in the Career Revalued Benefits section.
Opting-out of USS
Membership of USS is not compulsory and you may decide to opt-out once you have joined. If you do opt-out the benefits you get are the same as for any other leaver.
But, if you opt-out within 3 months of joining your employer will arrange for your contributions to be reversed and your tax and national insurance to be adjusted, as if you had never joined USS.
You should consider very carefully before deciding not to join, or withdrawing, once you have joined because the scheme provides an excellent range of benefits.
If cost is a concern, take a look at the Cost of contributions modeller to see what the true cost of membership is. It’s a lot less than you might think.
Also, speak to the pensions contact where you work to discuss your options. You will need to sign a form if you do decide to opt-out.