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 pensionable service x pensionable salary at leaving
Tax Free Cash = 3 x pension (as calculated above)
Here’s an example based on a member with 7 years and 113 days’ membership in the scheme and a pensionable salary of £40,500 on leaving:
Pension = 1/80th x (7y + (113d/365)) x £40,500.00 = £3,700 per annum
Tax-free cash = 3 x £3,700 = £11,100
In USS these benefits are known as ‘deferred benefits’ and the value of these benefits increases over time by the increase in line with official pensions. However, for service built up after 30 September 2011 USS matches official pension increases up to 5% a year and then 50% of any increase to official pensions in excess of 5% a year with a limit of 10% in any one year. So if official pensions increased by 15% the USS increase would be 10% in that year.
To work out the current value of you deferred pension please use the Deferred pension increase modeller.
You can draw these benefits from your normal pension age, in full. You can take your pension earlier, but some or all of that pension may be reduced to account for the early payment. This does depend on a number of factors. Please refer to the leaver guide for full details.
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, based on the traditional 1/80th formula.
Please go to the transfer out section for more details.
Rejoining
If you leave the Final Salary section of the scheme and rejoin in the following 30 months then you will automatically be re-entered into the Final Salary section.
You can choose to have the two separate periods of service joined together. In most cases this is beneficial, assuming your salary by the end of your latest period of USS membership is worth more than the salary (plus price inflation increases) from your earlier period of membership.
It is important to note that there is one instance where this option is not available. If you cease employment and rejoin after a break of more than a month and are over age 60 on the date of rejoining then you can only link any service accrued after 30 November 2006 to a new period of service. Any service accrued prior to 30 November 2006 will not be linked to a new period of service.
If the option to link up different periods of service is available to you, you won’t have to make the decision until you either retire or you leave USS again.
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.