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

Transcription

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

2 The proposed changes a brief summary DB Section Salary link for past service DB future benefit design KEY FEATURES OF THE PROPOSED SCHEME CHANGES CPI¹ 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 indexation CPI¹ ¹ Assumes 5% and 10% indexation slicing as per current rules on post October 2011 service only. 2

3 The proposed changes a brief summary DC Section KEY FEATURES OF THE PROPOSED SCHEME CHANGES Employer DC contributions above threshold 12% Other employer DC contributions DC employee contribution rate on salary above the threshold Up to 1% match on all salary 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 % ¹ Assumes 5% and 10% indexation slicing as per current rules on post October 2011 service only. 3

4 Ending the final salary link Current final salary section Pensionable salary at retirement Number of years past service Accrual rate (1/80 th ) X = Pension 45,000 X 10 years Accrual rate = 5, 625 a year 4

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

6 Impact on CRB members Current CRB section Pensionable salary Accrual rate (1/80 th ) = pension benefits earned in each year USS pension increases X = until retirement Pension 35,000 Accrual rate (1/80 th ) = 437 per year X Increases of 2.5% for 10 years (437 x 1.025¹⁰) = 559 per year 6

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

8 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 Pensionable salary of 35,000 per year Accrual rate of = 466 1/75ths a year X Inflation at 2.5% for 10 years (466 x 1.025¹⁰) = 598 a year 8

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 career revalued benefits on salary beneath the salary threshold Pensionable salary of 60,000 per year Accrual rate of 1/75ths = 733 applied to first 55,000 a year X Increases of 2.5% for 10 years ( 733x1.025¹⁰) = 916 a year 9

10 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 contribution 12% of 5,000 + Member contribution 8% of 5,000 = 1,000 a year X Amount made from investment (5%) X For 10 years ( 1000 x1.05¹⁰) = 1,551 DC account 10

11 Member contribution rate Current final salary member contribution rate 7.5% Current CRB member contribution rate 6.5% Member contributions for proposed new section 8% 11

12 Employer contribution rate Current employer contribution rate 16% Employer contributions for proposed new section 18% 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%) 12

13 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 13

14 The consultation process Employer consultation with affected employees Planned start date 16 Planned end date 22 May 2015 Where to find out more? -Interactive modeller -Detailed consultation material -Q&As -Ask your USS pensions contact 14