Employer consultation 2015 Consultation with affected employees on - PowerPoint PPT Presentation

Employer consultation 2015 Consultation with affected employees on proposed changes to the Universities Superannuation Scheme

The proposed changes – a brief summary KEY FEATURES OF THE PROPOSED SCHEME CHANGES DB Section Salary link for past service CPI¹ DB future benefit design CRB DB pension accrual rate 1/75 DB lump sum accrual rate 3/75 DB salary threshold £55,000 Revaluation of salary threshold CPI¹ DB employee contribution rate 8% Active revaluation of CRB benefits, and CPI¹ indexation ¹ Assumes 5% and 10% indexation slicing as per current rules on post October 2011 service only. March 2015 Consultation on proposed changes to the Universities Superannuation Scheme 2 2

The proposed changes – a brief summary KEY FEATURES OF THE PROPOSED SCHEME CHANGES DC Section Employer DC contributions above threshold 12% Other employer DC contributions Up to 1% match on all salary DC employee contribution rate on salary 8% above the threshold DC investments will be separate from DB and there will be a number of options including a default fund Employers’ contribution commitment 18% The employer contribution rate will be a uniform 18% of salary for all employers, regardless of the take up by employees of the DC matching contribution arrangement. A minimum employer contribution of 18% will apply for the next two valuations, ie up to 31 March 2020. ¹ Assumes 5% and 10% indexation slicing as per current rules on post October 2011 service only. March 2015 Consultation on proposed changes to the Universities Superannuation Scheme 3 3

Ending the final salary link Current final salary section Pensionable salary at Pension Number of years Accrual rate ÷ X = retirement (1/80 th ) past service £45,000 X 10 years ÷ Accrual rate = £5, 625 a year March 2015 Consultation on proposed changes to the Universities Superannuation Scheme 4 4 4

Ending the final salary link Proposed treatment of past service final salary benefits under the new section of the scheme Pensionable salary at Number of years Accrual rate USS pension Pension proposed X past service to ÷ (1/80 th ) X = increases until implementation date implementation date retirement March 2015 Consultation on proposed changes to the Universities Superannuation Scheme 5 5 5

Impact on CRB members Current CRB section Pensionable ÷ Accrual rate pension benefits USS pension increases Pension = X = (1/80 th ) salary earned in each year until retirement Accrual rate = £437 per year X Increases of 2.5% for 10 years (437 x 1.025¹⁰) = £559 per £35,000 ÷ (1/80 th ) year March 2015 Consultation on proposed changes to the Universities Superannuation Scheme 6 6 6

Impact on CRB members Proposed treatment of past service CRB under the new section of the scheme Past pension benefits earned Pension USS pension increases each year until proposed X until retirement = implementation date £559 £437 a year X Increases of 2.5% for 10 = a year years (437 x 1.025¹⁰) March 2015 Consultation on proposed changes to the Universities Superannuation Scheme 7 7 7

Proposed new benefit arrangement – new defined benefit section New defined benefit section for pension benefits provided after the implementation date - Career revalued benefits - Improved accrual rate – 1/75 th of pensionable salary - up to a salary threshold (proposed to be £55,000) Example 10 years (466 x 1.025¹⁰) = £598 Pensionable salary Accrual rate of = £466 X Inflation at 2.5% for ÷ a year of £35,000 per year 1/75ths a year March 2015 Consultation on proposed changes to the Universities Superannuation Scheme 8 8

Pension provision on earnings above the threshold New defined contribution section - Contributions on pensionable salary above the salary threshold (proposed to be £55,000) - Members’ contributions will be 8% and employers contributions will be 12% in respect of salary above the threshold - Choice of investment options and choice of retirement options Example – career revalued benefits on salary beneath the salary threshold Pensionable salary Accrual rate of 1/75ths = £733 a year X Increases of 2.5% for 10 years (£733x1.025¹⁰) = £916 ÷ of £60,000 per year applied to first £55,000 a year March 2015 Consultation on proposed changes to the Universities Superannuation Scheme 9 9

Pension provision on earnings above the threshold New defined contribution section - Contributions on pensionable salary above the salary threshold (proposed to be £55,000) - Members’ contributions will be 8% and employers contributions will be 12% in respect of salary above the threshold - Choice of investment options and choice of retirement options Example – defined contribution provided on salary above the salary threshold Employer Member £ 1,000 Amount made For 10 years £1,551 + = X contribution contribution a year from investment X (£1000 = DC 12% of £5,000 8% of £5,000 (5%) x1.05¹⁰) account March 2015 Consultation on proposed changes to the Universities Superannuation Scheme 10 10

Member contribution rate Current final salary member Current CRB member contribution rate contribution rate 7.5% 6.5% Member contributions for proposed new section 8% March 2015 Consultation on proposed changes to the Universities Superannuation Scheme 11 11

Employer contribution rate Current employer Employer contributions for contribution rate proposed new section 18% 16% The future service benefits to be provided from the implementation date (that is, the proposed CRB benefits based on the 1/75th formula, plus 3/75ths lump sum, up to a salary threshold, and including death in service and incapacity benefits) The employer contributions to the funding deficit (that is the contributions which will be required under the recovery plan to fund the deficit) The employer contribution to the defined contribution component (in respect of salaries in excess of the threshold, for relevant members) The employer contribution to the defined contribution matching facility (in cases where members choose to make an additional contribution of 1%) March 2015 Consultation on proposed changes to the Universities Superannuation Scheme 12 12

Further implications of the proposed changes Transfers in • Future transfers in on an entirely defined contribution basis • Ending of USS’s membership of the public sector transfer club • Consideration needed regarding non-club transfers approach AVCs • Consideration of defined benefit (added years and CRB) and defined contribution facilities • Option of continuity developed for existing regular instalment added years contracts and revalued benefit AVCS in accordance with application March 2015 Consultation on proposed changes to the Universities Superannuation Scheme 13 13

The consultation process Employer consultation with affected employees Planned start date 16 March 2015 Planned end date 22 May 2015 Where to find out more? www.ussconsultation.co.uk - Interactive modeller - Detailed consultation material - Q&As - Ask your USS pensions contact March 2015 Consultation on proposed changes to the Universities Superannuation Scheme 14 14 14