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Glossary

Cut through the pensions jargon with our handy glossary

We want to make pensions easy to understand. Take a look through the explanations below to help you get to grips with your pension and the terms that come with it.

A B C D E F H I L M N P Q R S T U V

A

Academic and comparable staff (A&C)

Employed by a USS employer in a role which is an academic or a research post – or in a comparable role in terms of responsibility and/or salary and in the employer’s job-evaluated pay structure.

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Active member

A member who is paying in to USS to build benefits and save for their future.

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Adjusted income

Broadly this is your taxable income, plus the Annual Allowance (AA) amount you have used in the tax year, less your pension contributions.

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Annual Allowance (AA)

The maximum amount of tax-free pension savings that can be made in a tax year. The standard AA is £40,000. If your savings exceed this amount, a tax charge may be payable which is designed to off-set the tax saving you will have received on your pension contributions.

Watch our short video for An Overview of Pension Tax, how you benefit from it and its limits.

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Annuity

Purchasing an annuity with your defined contribution (DC) savings (like the Investment Builder) means you’ll buy a regular income for life when you retire. The rate received will depend on a number of things, like the amount of money in your DC pot, market conditions, your age and health, whether or not the income will increase once in payment, and whether a pension will be provided to your dependants when you die.

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Assets

These are the different types of investments held within USS. Our assets may include company shares, UK government bonds, property, infrastructure and cash. Our assets, and earnings on those assets, are used to pay the benefits due to members.

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Asset classes

An asset class is a grouping of investments that have similar characteristics and are subject to the same laws and regulations. Equities (stocks), fixed Income (bonds), cash and cash equivalents, real estate, commodities are examples of asset classes.

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B

Benchmark

Our investment benchmark (or the reference portfolio) is the hypothetical amount of returns our market assets (such as equities, credit and property) should achieve for us to meet the benefits members have earned – and still be within risk levels agreed to by the employers. The benchmark acts as a guideline for the level of risk our in-house investment team will target in its portfolio. It also shows how well an investment has performed. By investing in more diverse assets, our in-house investment team aim to deliver returns over the benchmark and still target the same (or a lower) level of risk.

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C

Cash payments

See UFPLS.

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Contributions

The monthly amounts you and your employer pay to USS to build up your benefits and savings for the future.

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D

Deferred benefits

These are the benefits you built up before you stopped paying in to USS.

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Deferred member

This is a member who's stopped paying in to USS, otherwise known as a leaver.

Watch our short video on What happens when you leave USS, what your options are and how to keep your details up to date.

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Defined benefit (DB)

A pension based on how much you earn and how long you've worked for your employer. It means you're guaranteed an income from when you retire until you die. The Retirement Income Builder is a DB pension.

Watch our short video for some pensions basics, how they work and the benefits of saving for your future.

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Defined contribution (DC)

A DC pension arrangement is a savings pot based on how much you (and sometimes your employer) put into it. The money in your pot is invested and the value of your pot can go up or down – it all depends on how your investments perform. Your savings can then be used in a variety of ways when you come to take them. The Investment Builder is a DC arrangement.

Watch our short video for some pensions basics, how they work and the benefits of saving for your future.

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Dependant

Someone who, at the time of a member's death, is reliant on the member financially or because they have a physical or mental disability.

Do It For Me Option

An investment option for members with Investment Builder savings. If you choose this option (or don’t make a choice), we’ll manage your investments for you.

We invest your savings into a mix of funds. As you get closer to your Target Retirement Age, we gradually move your investments from funds with higher potential for growth but higher risk into funds that have less risk but less potential for growth. This aims to protect the value of your savings as you get close to taking them.

Watch our short video on investment choices and any decisions you need to make – like if you want us to look after your investments for you, or if you’d rather manage them yourself.

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E

Eligible child

A child who is under 18, or, if they're in full-time education, under 23. It also includes a child who’s not able to support themselves financially due to physical or mental disability.

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Emergency tax code

We'll use this for any payment(s) where no P45 is available. This includes cash payments (UFPLS), all dependant pensions, your pension if you previously stopped paying in to USS and your first payment if you've chosen to take flexible retirement.

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Enhanced Opt Out

With Enhanced Opt Out (EOO), you stop building up retirement benefits, but keep your life and ill health cover. This could be useful if for example you're close to or over the Lifetime Allowance (LTA).

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Exempt member

A person who was an active member of USS on 30 September 2011 and was aged 55 or over on 1 October 2011. You can access the benefits you've built up from 1 October 2011 at 63.5 (or the contractual pension age at 30 September 2011 if it was lower) – without your benefits being reduced. If you left and re-joined since 30 September 2011 but didn't re-join within six months of leaving, you won’t be an exempt member for your later period of service.

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F

Flexi-access drawdown

This is one of the flexible ways you can take your defined contribution (DC) savings (like your Investment Builder pot) from age 55. With drawdown, you can take up to 25% of your pension savings tax-free upfront. The rest can remain invested and then be taken as income when it suits you. This income may vary depending on investment performance and it isn't guaranteed for life.

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H

HMRC

This is an abbreviation for Her Majesty's Revenue and Customs.

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Hybrid pension scheme

There are two different types of workplace pension – a defined benefit (DB) pension (like the Retirement Income Builder), which guarantees you an income for life once you retire, and a defined contribution (DC) pension (like the Investment Builder), where contributions are invested into your own savings pot. A hybrid pension scheme like USS has both.

Watch our short video for some pensions basics, how they work and the benefits of saving for your future.

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I

Investment Builder

If you earn above the salary threshold, have made additional contributions, or transferred in from another pension arrangement since October 2016, you’ll have an Investment Builder pot – the defined contribution (DC) part of USS.

Here we invest savings from you and your employer based on your investment choices (or into our default option if you don’t make a choice). These savings, plus any investment returns, build up in your pot. Then, from when you reach age 55, you can choose when, and how, you want to use these savings.

Watch our short video on An Overview of USS and how the two parts work side by side.

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L

Let Me Do It Option

An investment option for members with Investment Builder savings. This option puts you in control of all your investment decisions, so you’re in charge of keeping track of how your funds are doing.

There are 10 funds for you to choose from and you can invest in one or more of them. They range from lower risk funds with possible lower returns, to higher risk funds, with potential higher returns.

Watch our short video on investment choices and any decisions you need to make – like if you want us to look after your investments for you, or if you’d rather manage them yourself.

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Lifetime Allowance (LTA)

The LTA is the limit on the amount you can take from your pension savings before you’re charged tax. If the value of what you take exceeds the LTA, the excess is subject to a tax charge. The limit is £1,073,100 for the 2020/2021 tax year. For most people the standard LTA applies, but there are a number of different LTA protections that might increase an individual’s LTA.

Watch our short video for An Overview of Pension Tax, how you benefit from it and its limits.

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M

The Match

The Match is one way to make additional contributions to save more – you can choose to pay an additional 1% of your salary every month to the Investment Builder. If you paid The Match between October 2016 and March 2019, you would have received an extra 1% contribution from your employer too. But from 1 April 2019, the employer element of The Match was removed. You can still choose, or may still have, The Match. But your employer will no longer match the 1%.

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Minimum pension age

The earliest age that HMRC usually lets an individual take their pension benefits. This is age 55.

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Money Purchase Annual Allowance (MPAA)

The MPAA applies when you start taking defined contribution savings (like the Investment Builder) in certain ways. The limit is £4,000 per year.

Once triggered, it limits how much you can pay into defined contribution arrangements before you need to pay tax. It will apply for all future tax years as well as the year in which you triggered it. It’s designed to stop individuals taking tax-free pension savings out of one scheme and then claiming more tax relief by reinvesting them back into other pension schemes.

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N

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Normal Pension Age

This is age 65. It’ll change to age 66 from October 2020 when the State Pension age increases. It’ll change in the future in line with increases to the State Pension age.

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P

Pensioner

A member drawing their benefits from USS.

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Q

Qualifying service

This is how long you’ve been a USS member and includes any time you were with a previous pension scheme if you've transferred those benefits to us.

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R

Retirement Income Builder

When you become a member of USS, you automatically join the Retirement Income Builder. This is the defined benefit (DB) part of USS. This will give you a pension – a guaranteed income for life – plus a one-off, tax-free (up to a limit) cash lump sum at retirement.

Watch our short video on An Overview of USS and how the two parts work side by side.

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S

Salary

This includes your regular salary and fixed cash allowances. It may also include any salary which fluctuates over time – check with your employer.

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Salary sacrifice

If your employer offers salary sacrifice, you can agree to give up the part of your salary that you would pay towards your pension, and your employer will pay your contributions for you. Then, you (and your employer) could pay lower National Insurance contributions.

However, there are reasons why this may not be right for you. For example, if you’re with USS for less than two years, and you use salary sacrifice, you’ll still be able to choose to keep pension benefits in USS or transfer them to another scheme, but you won’t have the option to get a refund of contributions when you leave. It may also affect the amount you’re eligible to borrow, if you’re looking for a mortgage or other finance. You should speak to your employer for more details.

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Salary threshold

The salary threshold for 2020/2021 is £59,585.72. If you earn over this amount, you’ll automatically start paying in to the Investment Builder, the defined contribution (DC) part of USS. The benefits you build in the Retirement Income Builder, the defined benefit (DB) part of USS, are based on your salary up to this threshold.

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State Pension age

This is the earliest age you can take your State Pension. This is age 65 but it’ll increase to age 66 from October 2020.

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T

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Tapered Annual Allowance

A Tapered Annual Allowance (AA) is lower than the standard AA and applies to those on a higher income.

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Target Retirement Age (TRA)

This is the age you plan to start taking your Investment Builder savings. Your TRA only applies to any savings you have in the Investment Builder – it doesn’t have to be the same age that you retire and start taking your Retirement Income Builder benefits. If you don't choose a TRA, we'll automatically set it to age 65.

It lets us know when to get in touch about your options as you approach this age. It also allows us to automatically move any investments you have in the Investment Builder to lower risk funds as you get closer to it. We do this for members in the Do It For Me Options, where we manage your investments for you. If you’ve chosen to invest in our self-select funds (the Let Me Do It Option), you’re responsible for reviewing and managing your own investments. But we’ll still send you a letter to remind you of your options around six months before your TRA.

You can update your TRA online at any time by visiting My USS.

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Tax-free cash lump sum

Once you retire, you’ll get an income for life and a one-off, tax-free (up to a limit) cash lump sum of three times your pension. You can choose to have a higher monthly income and a lower cash lump sum – or vice versa. It’s up to you.

And if you have savings in the Investment Builder too, you can take some or all of these as a cash lump sum or extra pension.

But there’s a limit on the amount of benefits that can be taken as tax-free cash. We’ll tell you this limit when we send you your retirement quote.

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Tax relief

With a pension, you get tax relief on the money you pay in, meaning your contributions are tax-free. This is because your contributions are taken from your pay before tax, so you only pay tax on the salary you take home, which doesn’t include your pension contributions.

Watch our short video for An Overview of Pension Tax, how you benefit from it and its limits.

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Threshold income

Broadly this is your taxable income from all sources less your pension contributions. If you've sacrificed any income by taking salary sacrifice on or after 9 July 2015 then add this sacrificed income back on.

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The trustee

Universities Superannuation Scheme Limited is the trustee of USS. We (the trustee) make sure USS (the scheme), which is set up for the benefit of our members and their dependants, is run in line with the trust deed and rules and legal duties.

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U

Uncrystallised funds pension lump sum (UFPLS)

This is one of the flexible ways you can take your defined contribution (DC) savings (like your Investment Builder pot) from age 55. With UFPLS you can take a number of cash payments from your DC savings to suit you. The first 25% of each is usually tax-free.

We call these cash payments at USS. You can take up to four cash payments each year from your Investment Builder pot (minimum £2,000 each). There’s no charge for the first payment each year, after that charges apply.

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USS standard pension increase

Your pension will be reviewed each April in line with our standard pension increases.

Any increases are linked to increases in official pensions paid to public sector employees (like teachers, civil servants or NHS employees). We’ll match the full increases for any USS benefits you earned before October 2011. For any benefits earned after that date we match these increases for the first 5% and pay 50% of any increase over 5%, up to a maximum increase of 10%.

So if official pensions increased by 3%, we would increase your pension by 3%. If they increased by 7%, we would increase your pre-October 2011 pension by 7% and post-October 2011 pension by 6%.

We’ll send you a Pension Increase letter each April to confirm any increases you might receive.

During any periods of deflation, or negative inflation, we won’t reduce the value of your pension, but it won’t increase.

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V

Valuation

A valuation looks at the short and long-term financial condition of USS. It must take place at least every three years.

It shows us how much money we have and how much we’re likely to need so we can pay the benefits that have been promised to our members. It also shows us the level of contributions that need to be paid to fund benefits in the future, or whether benefits might need to change in order to keep the contributions from members and employers at the current level.

Our scheme actuary helps us complete the valuation, and then reports to the USS board. After that, we give the valuation report to the Pensions Regulator.

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Voluntary Salary Cap

A Voluntary Salary Cap (VSC) allows you to manage the amount of tax you pay on the benefits you build up and on your salary. If you’re a USS member paying into the scheme and earning over the salary threshold, you can set your VSC anywhere between the salary threshold and your pensionable salary.

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Further information can be found on our key names and important information page.

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