The assumptions we have used in presenting these examples are as were used by the Joint Negotiating Committee (JNC) when it requested USS analyse the impact of UUK’s benefit proposals in August 2021. Whilst these assumptions have not been made by the Trustee, it believes they lie within a reasonable range. Given their importance in assessing the potential impacts of changes, the modeller that will be made available to members for the upcoming employer consultation will allow key assumptions and personal characteristics to be changed.
- Example members do not represent real members but have been chosen to reflect a range of current salaries, ages and accrued rights within the scheme, and draw from average ages and accrued rights of members with similar salaries.
- Example members contribute to USS via a salary sacrifice arrangement, receiving tax and NI relief.
- CPI inflation is 2.5%, but we have included a revaluation adjustment that assumes that on average the excess of CPI over the cap is 0.35% per annum – and therefore we assume benefits are increased by less than CPI each year. This is consistent with the adjustment to the CPI curve used by the trustee as at 31 March 2020, as requested by UUK (noting that the trustee’s use of this deduction for funding purposes applied to a different underlying inflation assumption). There will be more about this in the employer consultation materials.
- The salary threshold is increased by 2.5% each year.
- Example member salaries are increased by CPI+1.5% a year.
- Investment returns for members’ Investment Builder funds are those used for Statutory Money Purchase Illustrations in 2021 Annual Member Statements, assuming members are invested in the USS Default Lifestyle Option with a Target Retirement Age of 66. The nominal (inclusive of inflation) rates for the funds that are blended in the lifestyle options are:
- Investment management costs are not included. Employers currently meet most investment management costs.
- The retirement age for all examples is 66 – no late or early retirement factors are applied to past and future service (this will affect all benefit structures).
- All USS benefits shown as income at retirement at age 66. The future value of those benefits could change during retirement, due to the 2.5% cap on revaluation.
- The lump sum payable on retirement from the Retirement Income Builder is converted to income using the current reverse commutation factor for a 66-year-old (3.22%).
- Investment Builder savings are turned into income using an assumed withdrawal rate of 3.5% per annum. There is always a risk that the Investment Builder funds could be exhausted before a member passes away.
- The State Pension increases in line with CPI inflation in the future.
- No other pension provision that members may have in any other arrangement is included.
- All projected pension figures are rounded to the nearest £50.