Dept of Biochemistry

Transcription

1 USS Pensions Open Meeting Geraldine Egan (UCU Pensions Office) Richard Farndale (Cambridge UCU and USS Member) Dept of Biochemistry 25th April 2016

2 Topics today 1. The Final Salary Scheme (now closed) 2. The 2011 Career-average Revalued Benefits Scheme (now closed) 3. The new hybrid CRB/Defined Contribution scheme 4. The transition from FS to Hybrid scheme 5. Questions

3 USS Pensions Summary Pre-2011: Final Salary (FS) Scheme for all members + Additional Voluntary Contributions (AVCs) Added years (USS) or Money Purchase DC scheme (Prudential) 2011: Career-Average Revalued Benefit (CRB) Scheme Introduced for new members only 2016: FS Schemes Closed (March 31). Hybrid CRB scheme/dc Scheme Applied to all members

4 How did FS Scheme Work? Pension is calculated as: No. of years service x Pensionable Salary x 1/80 Plus: a lump sum of 3 x Pension where Pensionable Salary is defined as: Highest of: Earnings in 365 consecutive days during last 3 yrs of work ( Final Salary), or Highest RPI-revalued annual salary, averaged over 3 consecutive years, during final 13 years of work. Employee contribution rate was 7.5% of salary

5 Take a lifetime of salary:

6 Uprate last 13 years by RPI:

7 Locate Average 3 Best consecutive yrs:

8 Additional Voluntary Contributions (AVCs) Money Purchase (Prudential scheme) You pay in a sum of your choosing each month, deducted from gross salary before tax. Invested in equity market, etc You draw this down at retirement as either: Tax free lump sum, or annuity (additional pension). Added Years (part of USS FS scheme) You pay an agreed monthly sum before tax to purchase Additional Years of Service, used to increase your net pension.

9 The 2011 CRB Scheme Pension is calculated as: No. of years service x Pensionable Salary x 1/80 Plus a lump sum of 3 x Pension where Pensionable Salary is defined as: Average of: Earnings in each year of work, revalued by CPI from that year forward to retirement Contribution rate was 6.5% of salary

10 Take the same salary lifetime:

11 Increase by Consumer Price Index (CPI)

12 The new Hybrid CRB/DC scheme 1 Up to a salary of p.a., CRB scheme operates Top of UCAM Scale 9 (~ Spine point 61; UL/SL) Pensionable salary calculated as for 2011 scheme using CPI-uprated yearly salary Accrual rate is 1/75, not 1/80 But uprating is progressively capped: Full CPI up to 5% p.a. Half of any increase in CPI between 5% and 15% No further increase if CPI exceeds 15% (i.e. a 10% cap). New employee contribution rate is 8% of salary

13 The new Hybrid CRB/DC scheme 2 For Salaries above p.a: No further contribution to the CRB scheme Instead: The employee 8% goes into a Defined Contribution scheme (like the Pru AVC). UCAM adds 12% of salary* The employee may add a further 1% of salary, which will be matched by UCAM. The employee may add more, without matching. This DC fund is invested and returned to the employee at retirement as a tax-free lump sum. * The UCAM contribution is 18% overall, the spare 6% goes to the matching of extra employee contribution, or to pay down the deficit.

14 How does the FS scheme connect with the new Hybrid CRB/DC scheme? Your Pensionable Salary is calculated as before, as though you had retired on 31st March You are entitled to a pension of No. of years service x Pensionable Salary x 1/80 Plus: a lump sum of 3 x Pension This pension is carried forward to your retirement, up-rated by CPI, subject to caps on CPI level as for the CRB scheme. You have now joined the regular CRB scheme, so you will accrue further pension at an accrual rate of 1/75 to be added to your FS entitlement plus a further lump sum of 3 x this extra pension.

15 Catches and pitfalls Additional Years AVCs can no longer be started. But existing contracts can continue if you wish No new Prudential AVCs can be started But new contributions to existing Pru AVCs are OK. New rules apply to drawing down funds prior to retirement There is a lower limit on the size of your total Pension Pot. Geraldine will explain! Inflation (CPI) must stay below 5%, or your pension will be progressively devalued

16 Questions and Answers: 1 What happens once the current Prudential AVC scheme terminates in September? Is this directly replaced by the voluntary contributions to the new DC section? Can existing Pru AVCs run alongside the new DC section? All current Prudential AVC funds will cease on 30 th September Individuals will be able to use the DC section called Investment Builder Income to pay additional money into fund or funds. The existing Pru AVCs will be able to be moved over, some will have time lapses to ensure that individuals do not encounter market adjustment costs. The only fund continuing will be the with profits fund up to 30 th September 2019, when this fund will also cease. Funds in the with profit will remain with Prudential so individuals do not lose out. There will not be a with profit fund in USS.

17 Questions and Answers: 2 I m a contract researcher, I have a few years service in USS, but I plan to join a company in the USA when my contract finishes in 2 years time. What happens to my USS pension? Your pension is calculated as described above for the years you have served, and up-rated by CPI as for active members. It can be drawn at retirement as though you remained in the UK. Don t lose track of your USS membership number. You can always contact USS through their website.

18 Questions and Answers: 3 I am a new employee, and I would like to have some information on how the pension scheme works and how to opt out. You pay 8% of your salary before tax towards your pension; UCAM pays 18% and you build a pension pot annually. Every year 1/75th of your salary is put into the pot and is increased annually in line with CPI. 8% of your salary over 55k goes into a DC fund called USS Investment Builder that is plus 12% from UCAM. In addition you can pay an extra 1% on all of your salary and have the employer paying a matching 1% into the Investment Builder. When you reach pension age you will receive your annual pension plus 3 times as a lump sum. You will also have the option of increasing your lump sum to a maximum of 25% of your total pension pot, or maximising your annual pension even up to no lump sum. If you opt out then you are providing a saving of 18% to your employer. You ask your pension officer for an opt-out form, but do think carefully.

19 Questions and Answers: 4 I have a FS pension and am paying for Added Years contributions. My salary is over 55K If my Added Years take my projected final salary above half of the 55K is there any point continuing to pay the Added Years contribution, - will it then go into a defined benefit scheme, or would I be better stopping the additional years contribution and moving those over to a defined contribution. How can I calculate which is the better option? If you have an Added Years contract you can continue to pay the contributions up to its end date. These will provide the extra years service you contracted to pay to the FS scheme, your final average salary at that point was realised, this was either the best consecutive 365 days in the last 3 years or the 13 year look back with all salary points increased in line with inflation and the best consecutive 3 years enhanced averaged. This calculated final salary will continue to increase in line with CPI. Your decision is whether to continue or not, so if you are a long way from retirement then your pay is likely to be a lot higher and it may not be worthwhile continuing. If you are likely to be promoted, again your salary will increase and it may not be the best use of money. If you are close to the end of the contract, or retirement and are on a flat salary then you will probably gain. Sorry, there is no clear best option, as the performance of the yet-to-be-revealed DC funds is not known, and we are looking into the future in the market place.

20 Questions and Answers: 5 Above the lifetime limit the tax rates on the pension pot are: 55% if you take it as a lump sum, 25% if you take it as a pension or cash withdrawals. Given that the existing USS pays both a lump sum and a pension payment how will this be taxed above the lifetime limit? Is it pro-rata according to the amount which is lump sum/cash or pension, or will the 55% be applied to the entire lump sum. Also could someone define the difference between lump sum and cash? If at the point of retiring and drawing your USS pension you have exceeded the lifetime limit, in USS you can take annual pension and lump sum, at present the lump sum remains tax free and the charge is on the pension at 25%. If you moved all into cash or drawdown then it would be charged at 55%. (Lump sum = a single cash payment)

21 Questions and Answers: 6 The USS is a Last Man Standing scheme, in other words, if contributing institutions go bust, those remaining pick up the liabilities of the USS scheme. In practice, how would this work? Say, the Panama University of Trumpington went out of business, would any of its assets find their way into the USS resources, or would this simply be increased liability for the USS member institutions? USS would seek to recover assets from the failing PUT, so that its liability to support USS would not entirely be passed to the remaining USS Institutions.

22 Questions and Answers: 7 Am I entitled to a State Pension as well as my USS pension? This depends on your National Insurance Contribution history. The USS was Contracted Out of the State Earnings-Related Pension scheme and its successor until April 2016, and you paid lower NI as a result. So you would get a reduced State Pension resulting from this period of USS membership. If you have made NI contributions for 10 years, you will be entitled to some State Pension. Full contributions for 35 years are required for the full State Pension. For a precise personal statement, see

23 What about the Future of USS? The new hybrid scheme is heavily parameterised: Accrual rate: 1/75 Up-rating for inflation CPI to 5% Half CPI from 5 to 10%, zero beyond 10% CRB/DC salary threshold: Employer input to DC 55k 12 % of salary 1% matching More external pressure: Caps on Tax-free Total Salary Pot Possibility of changing tax relief on contributions, or taxing Lump Sums Deficit is subject to Valuation Methodology