A Summary of the Universities Superannuation Scheme (June 2013)

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1 A Summary of the Universities Superannuation Scheme (June 2013) 1. Purpose The purpose of this guide is to provide a basic understanding of the benefits available from the Universities Superannuation Scheme (USS). Members of staff who do not withdraw from the USS will receive the Guide for USS Members shortly after they commence working at the University, usually by although a hard copy is available on request. If you wish to receive a copy before then, you may request one from the Payroll and Pensions Office, either by telephone: +44 (0) or pensions-enquiries@ncl.ac.uk 2. About the USS The USS is one of the largest defined benefit pension schemes in the country, with assets of around 34 billion and over 141,000 active members as at 31 st March It is the pension scheme provided by more than 370 participating institutions, including UK Universities and Higher Education Institutions, and was established in The USS has provided information on the key benefits available from the scheme together with guidance on which section you would be admitted to. This is attached as Appendix A. 3. New Appointments Subject to the exceptions referred to below, and to the conditions of their employment, new members of staff will be automatically enrolled, immediately on starting their employment, into the USS. You may withdraw from the scheme within the first 3 months of joining and receive a refund of your contributions, but it will not be possible to withdraw from the scheme prior to your start date. Contributions will be deducted from your salary accordingly. If you were a member of the NHS Pension Scheme immediately prior to joining the University and wish to continue in membership of the scheme you should indicate this on the Payroll Starters Form and request an Application form from the Payroll Office. Alternatively, if you are a Teaching Assistant on a variable time, hourly paid contract, you will be assessed under the auto-enrolment criteria. If you meet the criteria to be automatically enrolled, this will be postponed for three months. You will be eligible to opt in to the USS within the three month postponement period. You may also be able to opt in if you do not meet the auto-enrolment criteria; further information will be provided after the auto-enrolment assessment. Should you decide to withdraw from membership of USS your decision will not be irrevocable. Subject to certain conditions, you can join or rejoin USS at a later date. Statutory regulations require the University to periodically re-enrol employees in to a pension scheme; however we will notify you of this requirement at the appropriate time. 4. Benefits If you are already a member of the USS, you will continue your existing membership. Page 1 of 13

2 New members of the USS will normally be admitted into the Career Revalued Benefits Section. Members will build up a pension of 1/80th of each year s salary for each year of service. The pension is worked out each year based on your salary in that year; the value of each year s pension is then revalued up to the point you leave or retire. In addition to a pension you will, as standard, receive three times your gross pension as tax-free cash, with the option to take more or less cash and receive a lower or higher pension (within limits). If you die, whilst paying into the scheme, your beneficiaries will receive a lump sum of three times your annual salary and an income is payable to your spouse/civil partner and eligible children. An income may also be payable to a financial dependant if you are not married nor part of a civil partnership. If you are unable to continue working because of partial or total incapacity, you could receive a pension for life and a tax-free lump sum. A fuller description of the benefits is available from the USS website at 5 Exceptions If you are already in receipt of a USS retirement pension, you will not rejoin the USS but will be automatically enrolled into the National Employment Savings Trust (NEST) if you are under state pension age and your earnings reach the auto-enrolment earnings trigger (currently 787 per month (2013/14 rates)). You will receive further information regarding the scheme and the opt-out arrangements shortly after enrolment into the scheme. You can opt-out, but only after you have been enrolled and you will need to contact NEST either online or by phone to activate the opt-out process If you are currently receiving a USS Incapacity retirement pension, you should inform USS Ltd of your employment as they may need to withdraw or suspend your pension. In those circumstances, you will be automatically enrolled into the Career Revalued Benefits section of the USS, however terms and conditions may be imposed by the USS. 6 Extensions of Contract / Re-appointments If you are already a member, your membership will be continued. If you are not currently a member you may wish to consider applying to join now. Further information is available from the Payroll and Pensions Office (ext 5102). 7 Flexibility Depending on circumstances, you may be able to retire and start receiving your pension before the scheme s normal pension age of 65. You also have the freedom to increase the value of your benefits, or to plan for early retirement, by making regular monthly or periodic payments called Additional Voluntary Contributions (AVCs). You can also choose to boost your regular pension income on retirement by choosing to take a smaller lump sum. There are also options for flexible retirement, subject to the University s agreement, drawing a part of your pension entitlement while reducing your working hours. Page 2 of 13

3 8. Withdrawing from the scheme You may subsequently decide to withdraw from the Scheme, in which case you will cease to enjoy any of the benefits. If you withdraw within three months of the date of the commencement of your employment, your withdrawal from the Scheme will have retrospective effect to that date and you will be deemed never to have been a member of USS. In that event any contributions you have made to USS will be refunded less a deduction in respect of tax relief you received on your contribution whilst a member of USS. An adjustment to your National Insurance contributions, effective from the date you joined the USS, will be made to reinstate your State Second Pension If you decide to withdraw from USS later than three months after the date of commencement of your employment you may do so by completing the appropriate withdrawal form available from the Payroll and Pensions Office. If you withdraw with less than 2 years pensionable service you may be eligible for a refund of your own contributions, subject to a deduction of tax and national insurance contributions. This does not apply if you join as a Pensions+ member see below. 9 Pensions+ You will join USS initially on a contributory basis. After 3 months membership, we will review your situation and, where appropriate, you will be changed to a non-contributory Pensions+ member. This is designed to ensure that you and the University gain from the maximum National Insurance relief that is available. As a Pensions+ member, the University will pay contributions on your behalf directly into the USS. In return, you agree to a corresponding reduction in your salary. Your pension benefits will be calculated using your Reference Salary, which is your pay before any salary sacrifice for Pensions+. If you were a member of the USS in a previous employment before joining Newcastle University, and have not received a refund of contributions or transferred your benefits out of the scheme, your USS membership will normally continue, and will be as a noncontributory Pensions+ member from the start of your employment. Pensions+ works as follows: Your gross salary is reduced by a salary sacrifice equivalent to the member contribution rate (6.5% of Pensionable Salary for members of the Career Revalued Benefits Section, 7.5% for members of the Final Salary Section); The University increases its contribution to the USS by an amount equivalent to your salary sacrifice; and You and the University benefit from paying less National Insurance contributions, because these are not payable on that portion of your salary that you sacrifice. Page 3 of 13

4 10. What to do next If you wish to take advantage of the very substantial benefits provided by the USS, you need do nothing at this stage. The Guide for USS Members will be sent to you shortly after you commence working at the University. We expect most members will be better off under the Pensions+ arrangements, however if you initially join on a contributory basis, we will contact you after 3 months of joining the scheme with further information. You are still eligible to participate in the USS as a contributory member if you do not wish to participate in Pensions Further Information on Pensions+ a) How much will I save under Pensions+? Some examples of savings are provided below to help illustrate what happens under Pensions+ at different salary levels. Annual Salary Career Revalued Benefits Section Member contribution rate 6.5% Member Contribution ( pa) Member NI Savings ( pa) Final Salary Section Member contribution rate 7.5% Member Contribution ( pa) Member NI Savings ( pa) 35,000 2, , ,000 2, , ,000 2, , ,000 3, , The savings are based upon the marginal rate of National Insurance Contributions (NICs) that is payable on the salary that is given up as a pension contribution. b) How does Pensions+ affect my pay, other pay elements and University provided benefits? Pensions+ will not reduce any salary-related payments (such as your salary-related pension benefit) or any benefits that you receive from the University: these will be based on your Reference Salary. It will however reduce your NICs, leaving you with increased take home pay. c) I am over State Pension Age so there are no NI savings for me, but there are for the University. Could I lose out by being in Pensions+? No, if you are over State Pension Age you do not accrue further entitlement to state benefits. Nor do you lose out on any pay or pension benefits. Page 4 of 13

5 d) What is a Reference Salary? Participating employees will have a Reference Salary (referred to as Monthly Salary on your payslip) which refers to your pay before taking account of any salary sacrifice adjustment. Your payslip will appear differently after salary sacrifice. The Reference Salary is the amount used to calculate your other salary-related benefits such as salary increases and bonuses. It is also the amount used in personal official correspondence eg mortgage letters, loan applications or job references etc and will be the figure typically quoted in pay scales. e) Does this affect the amount of tax that I have to pay? The tax that you pay is not affected by Pensions+. f) How will Pensions+ affect my pension benefits? Your pension benefits remain unchanged. Your pension benefits are based on your pensionable salary. This is your annual salary or Reference Salary including any other pensionable earnings. Similarly, if you die whilst an active member of Pensions+, your Death in Service benefits will not be affected. Any benefits payable to survivors or dependants will also be unchanged. g) Does the level of my earnings affect whether I will benefit from Pensions+? The University has structured Pensions+ so that nearly all employees will benefit. However, there are some situations where we cannot completely guarantee this: i. It is unlawful to sacrifice salary to the extent that your gross earnings are reduced to a level below the National Minimum Wage (NMW). The University offers additional salary sacrifice arrangements including Childcare Vouchers and Cycle to Work; if the effect of one or more of the salary sacrifice arrangements was to reduce your gross pay below the NMW the University would need to reduce the amount of your salary being sacrificed to bring you back above the NMW. ii. iii. If you earn less than 7,755 per annum (Earnings Threshold for 2013/14, you will not pay NICs and will therefore not be able to benefit from Pensions+. Additionally, if you earn less than the Earnings Threshold after benefits paid via salary sacrifice, you may lose your entitlement to some state benefits (eg employees who work less than 16 hours per week may find their Job Seekers Allowance affected). Page 5 of 13

6 iv. The University has a Pay Protection Limit (PPL) of 8,500 (for the tax year 2013/14) a year to ensure that no employees are worse off under Pensions+. If your earnings currently, or in the future, fall below this limit you will be taken out of Pensions+ automatically. Your pension payments will then be made on a Contributory basis only unless you confirm your wish to participate in Pensions+. v. If your current earnings are below the PPL and in the future increase above this limit you will automatically be enrolled into Pensions+ at the next anniversary date. You will be informed of this action at the time. vi. You may opt into Pensions+ if you fall below the PPL (but remain above the NMW), and believe it will be of benefit to you, by completing an Opt-in form available from the Payroll and Pensions Office. h) Can salary sacrifice arrangements impact on state benefits? Rules for the calculation of state benefits may change. Currently if you earn over the Earnings Threshold your entitlement to state benefits is not affected. However, if you earn less than the Earnings Threshold, salary sacrifice may affect your entitlement to state benefits and tax credits where these are based on the amount of National Insurance that you pay or the amount of your earnings. The earnings-related benefits which can be affected include Maternity Allowance, whereas the NI contributionrelated benefits include Incapacity, Employment and Support Allowance, Basic State Pension and Jobseekers Allowance. i) Could the Government come back at a future date and reduce my State Pension as I paid less NI contributions by entering into Pensions+? No State Pensions are not based on the amount of NI you pay rather the number of years that you have actually made NICs. j) How will Pensions+ impact on my tax credits (working tax credit and child tax credit)? Pension contributions are allowable deductions in the calculation of income for tax credits, hence the reduction in salary arising from Pensions+ is unlikely to impact on tax credits. You will need to consider your own individual circumstances. More information can be found at Page 6 of 13

7 k) What happens if I am on a fixed term contract that expires within two years of joining the pension scheme? If you are on a fixed term contract that will expire before you reach two years active pension membership, you will not be opted into Pensions+. You may, if you wish, optin by completing an Opt-in form, available from the Payroll and Pensions Office. However if you leave the USS with less than two years active pension membership you will not be entitled to claim a refund of any pension contributions paid as, under Pensions+, members do not make contributions. Fixed term employees who remain Contributory members (ie opted-out) will automatically be defaulted into Pensions+ after two years active pension membership at the next anniversary date but will have the choice to opt to remain as a Contributory member. You will receive a letter at the time of the automatic opt-in reminding you of your options. l) What happens if I leave the University or the pension scheme with less than two years active pension membership? Legislation allows members of occupational pension schemes to request a refund of their contributions (less the statutory deductions) if they leave within the first two years of active pension membership, including service/ benefits transferred from another scheme. If you participate in Pensions+ you would not be able to receive a refund for any period you are in Pensions+ as your contributions are being paid by the University. A member leaving with split service (ie with pension membership on a contributory basis and on a salary sacrifice basis through Pensions+) must think carefully before choosing a refund of member contributions as the value of the return of the member contributions less the statutory deductions may be much less than the overall value of the other benefits available on leaving. There is the option to transfer the benefits into another suitable pension arrangement. m) What about Additional Voluntary Contributions (AVCs)? The USS does not allow AVCs to be included in Pensions+ arrangements therefore any AVCs would be made on a contributory basis. n) What happens if I go on maternity/paternity/adoption leave? Although salary sacrifice can reduce the amount of Statutory Maternity Pay (SMP) a woman is entitled to, for those who have more than 52 weeks service at the Page 7 of 13

8 Qualifying Week, the University ensures that participating employees are no worse off by paying Occupational Maternity Pay (as defined in the Maternity Policy). For employees with less than 52 weeks service but more than 26 as at the Qualifying Week, participation in salary sacrifice could potentially result in a reduced SMP payment for the first 6 weeks of your maternity leave. This is because SMP is calculated on the amount of average weekly earnings during the 8-week period, fifteen weeks prior to the expected date of childbirth. By participating in salary sacrifice there is a reduction of salary for NI purposes during this period which can then reduce entitlement. In these circumstances the University will ensure there is no detriment to any employee with salary sacrifice arrangements by paying a top-up payment equal to the amount you would have received, if you were not participating in salary sacrifice. Similar arrangements apply for members on adoption or paternity leave. o) How will Pensions+ affect my student loan repayments? Student loan repayments are based on your total gross salary. Your total gross salary will be reduced by an amount equal to your gross pension contribution if you participate in Pensions+, therefore, your student loan repayment will be reduced to reflect this and may take longer to repay in full. p) What happens if I subsequently sign up to another salary sacrifice benefit and the combined impact takes my salary below the Earnings Threshold or NMW threshold? Participation in several salary sacrifice schemes must be considered carefully to ensure NMW requirements are met, together with the Earnings Threshold. Under the Minimum Wage legislation you are not permitted to reduce your gross income below the NMW threshold. If you are currently participating in or considering joining another salary sacrifice scheme in the University, and you think the combined impact may reduce your salary below the NMW or Earnings Threshold (for NIC purposes) please contact the Payroll and Pensions Office for further guidance. The options available to you depend on which salary sacrifice you are interested in. q) Can I choose to opt-in or opt-out of Pensions+ at any time? You may choose to opt-in at the Pensions+ Anniversary date (1 July). Opting-out can take place at any time during the year. Opting-in and opting-out constitutes a change to your Terms and Conditions of Employment. You are still eligible to participate in the pension as a contributory member if you do not wish to participate in Pensions+. Page 8 of 13

9 r) Will Pensions+ be around forever? If legislation changes the University may be forced to withdraw the Pensions+ Scheme. Pension+ members would automatically be changed to pension membership on a contributory basis. Your reference salary would revert back to being your actual annual salary. s) I ve still got more questions, where can I get further information? Please pensions-enquiries@ncl.ac.uk.your query will be directed to the appropriate University representative. The University s Payroll and Pensions Office can also be contacted on (0191) Further Information on USS Benefits Please note that this summary is no more than a guide to the principal benefits provided by the USS and is not, in any way, definitive. The only source of definitive information on the benefits provided by the USS is in the USS rules. The USS provides much more information on the scheme on their website which may be found at Alternatively, you may contact the University Payroll and Pensions Office, either by telephone: +44 (0) or val.wall@ncl.ac.uk RJC Burrow/RE Boggie/V Wall 11/06/13 Page 9 of 13

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