Your pension is changing

What’s changing?

On 1 April, the salary threshold will reduce from £59,883.65 to £40,000, so you’ll build Retirement Income Builder benefits based on your salary up to £40,000, and contributions based on your salary above the threshold will build up savings in the Investment Builder.

What does that mean for me?

You’ll build up more flexible Investment Builder savings, each year, while building fewer benefits in the Retirement Income Builder. Combined member and employer contributions to the Investment Builder are 20% of salary above the salary threshold, with 8% coming from you and 12% from your employer. But you’ll still contribute 9.8% of your salary in total, with the remainder supporting the Retirement Income Builder. Watch our video for an Investment Builder refresher.

What’s changing?

The accrual rate is the rate benefits build up in the Retirement Income Builder. It’s equivalent to a portion of your salary up to the salary threshold. At the moment, each year, you build up a pension worth 1/75 of your salary and a separate lump sum of 3/75 of your salary up to the salary threshold. From 1 April, you’ll build up a pension at a lower rate of 1/85 of your salary and a separate lump sum of 3/85 of your salary up to the salary threshold.

What does that mean for me?

From 1 April, you’ll build less Retirement Income Builder benefits each year. They’ll still be increased in line with inflation each year (subject to a cap) both before and after you retire, and you’ll still have all of the same options at retirement, including your tax-free lump sum. Any benefits you’ve already built up are secure and will not be affected by this change.

Watch our video to see how you build benefits in the Retirement Income Builder.

What’s changing?

The salary threshold goes up each year in line with increases to official pensions, which broadly increase in line with CPI inflation. At the moment, annual increases are capped at 10% per year (the first 5% matches official pensions, with half of any excess above that matched to the cap of 10%). After 1 April 2022, they’ll be capped at 2.5% until 31 March 2025 or, if earlier, the implementation date of any change concluded following a review by the JNC of the amount of the salary threshold.

What does that mean for me?

If future increases to official pensions are higher than 2.5% in any year, the salary threshold will only increase by 2.5% in that year. This means more of your contributions will build up savings in the Investment Builder.

What’s changing?

On the 1 April each year, all of the Retirement Income Builder benefits you’ve built up (excluding any built up in the previous 12 months as there’s a natural time lag) are increased in line with official pensions, which broadly go up in line with CPI inflation. This provides a level of inflation protection for your benefits.

At the moment, the annual increase for benefits accrued from 1 October 2011 is capped at 10% (the first 5% matches the increase in official pensions, with half of the excess above 5% matched to a maximum of 10%) - this cap will continue to be applied on each annual increase until and including 1 April 2025.

From 1 April 2026 the cap will reduce to 2.5%* - this means benefits built up from 1 April 2024 will be increased by a maximum of 2.5% each year following. In addition, any benefits you’ve built up from 1 April 2022 to 31 March 2024 will be increased by a maximum of 2.5% each year from 1 April 2026 onwards.

The reduced cap will continue to provide a level of protection against cost of living rises and is above the Bank of England’s target inflation rate of 2%.

Please note: The temporary suspension of the reduction of the cap on benefits built up from 1 April 2022 up to and including 31 March 2024 is subject to the trustee’s consultation with Universities UK on the statutory funding documents.

What does that mean for me?

Right now, this won’t affect the way your benefits increase. But from 1 April 2026, when the new cap is implemented for most members*, if official pensions increase by more than 2.5%, the increase to any benefits built up in the Retirement Income Builder from 1 April 2022 will be capped at 2.5%. Benefits built up prior to 1 April 2022 won’t be affected by the change.

*It’s important to know that if you retire or leave part way through the year of 1 April 2024 to 31 March 2025, the benefits you build up during that year will be increased on 1 April 2025 and will be subject to the 2.5% increase cap, not the 10% cap.

What’s changing?

Members who leave USS from 1 April 2022 within two years of joining will be able to choose to receive full deferred benefits from the Retirement Income Builder – a pension of 1/85 of salary and a lump sum of 3/85 of salary up to the salary threshold for each year that they’ve paid into USS – instead of benefits based on what they’ll have paid in multiplied by an actuarial factor. The exception to this will be members who give written notice on or after 1 April 2022 to retrospectively withdraw from the scheme within three months of joining.

What does that mean for me?

From 1 April, members that leave USS within two years and choose to receive their full deferred benefits will get the value of their ‘banked’ benefits, so most members will get more than they do now. It’s important to think about your future, before leaving a workplace pension scheme.