University of Aberdeen Superannuation and Life Assurance Scheme. Member Consultation

Transcription

1 University of Aberdeen Superannuation and Life Assurance Scheme Member Consultation Your guide to the proposed changes to your future pension benefits June 2018

2 Contents Page 1 Introduction 2 2 UASLAS Details 4 3 Existing Pension Benefits 5 4 Future Pensions 5 5 Next Steps 10 Appendices A Defined Benefit v Defined Contribution 12 B Frequently Asked Questions 13 C Defined Benefit Example 18 D Defined Contribution Example 19 E Hybrid Example 20 F Options Summary 21

3 1. Introduction This guide contains important information about the University of Aberdeen Superannuation and Life Assurance Scheme (UASLAS). The University intends to make changes to UASLAS with effect from no earlier than 1 January 2019 and is considering a number of options, about which the University wishes to consult with current and prospective members. UASLAS 2016 Valuation Every 3 years, the Trustees ask the actuary (who is independent of the University) to carry out a valuation. The purpose of this exercise is to compare the investments held in UASLAS (the assets) with an estimate of the value of the benefits that are due to be paid from UASLAS in relation to service so far (the liabilities). The actuary also estimates how much the University should contribute to UASLAS to provide for the additional benefits building up in future years. If the value of the liabilities exceeds the value of the assets, UASLAS is said to have a shortfall (also known as a deficit). The Trustees and the University must then agree what action will be taken to remove this shortfall (for example, additional contributions over a number of years). The 31 July 2013 actuarial valuation showed that UASLAS had a shortfall of 2.6m. Based on this valuation the University agreed to pay 17.5% of UASLAS members salaries to UASLAS. This was made up of 11.7% in relation to the additional benefits building up in future years and 5.8% towards the shortfall. As at 31 July 2016, the date of the current valuation, UASLAS had: 612 live members (employees who continue to earn pension benefits) 690 deferred members (members who are no longer earning pension benefits but retain existing benefits within UASLAS) 977 pensioners It has been well publicised in recent years that the costs and risks associated with defined benefit schemes have increased considerably. The main reasons for this are: People are living longer and, as a result, pensions are being paid for longer; Lower interest rates mean that scheme investments aren t expected to grow as much as they used to; Increasing complexity of pension legislation which has added significantly to the costs of running schemes. The 31 July 2016 actuarial valuation exercise showed that the shortfall had increased to 8.9m. In order to continue to provide benefits at the existing level and make good this shortfall over a number of years, the University has been required to increase contributions to 24.2% of UASLAS members salaries (an increase of 6.7% of salaries). This is simply not affordable for the University on a continued basis. Consultation on UASLAS Benefit Changes The University is consulting with all UASLAS members and staff who are eligible to join UASLAS. The consultation period will run until 10 August During this time you will have the opportunity to submit your comments to the University and raise any questions you may have about the proposed changes. The University has agreed to share the assumptions that form the basis of the 2016 valuation with the trade unions. The recognised trade unions Unite and UNISON will also be consulting their members and we have agreed that the University and the trade unions will meet after the consultation period has ended to discuss how to implement changes agreed. At this point there may be some changes to the detail of any of the options contained in this consultation, to take into account comments received during the consultation and from the recognised trade unions. In the following sections of the guide, we have set out three options that the University is currently considering for future pension provision. Please send us your views on your favoured option by completing the enclosed survey. This will assist the University in finalising the new arrangements. 2

4 A key point for you to bear in mind is that there will be no changes made to benefits for service up to 31 December These will continue to be calculated based on the terms that are set out in the current UASLAS Rules (and summarised in the member booklet). The new structure will only affect the benefits you build up from 1 January 2019 onwards. At this stage, the University is considering three options for the new structure Option 1 pensions from 1 January 2019 will continue to be built up on a fully defined benefit basis, but at a lower accrual rate than under the current scheme Option 2 pensions from 1 January 2019 will be built up on a defined contribution basis only Option 3 pensions from 1 January 2019 will be built up in a combination of defined benefit and defined contributions This guide sets out a proposed structure under each of these options. The University wishes to take your thoughts on benefit changes into consideration. Included in this pack is a Member Consultation Survey where you can select your favoured option (one option only). How pensions are provided The bullet points above use the terms defined contribution (DC) and defined benefit (DB) basis. It is important that you understand the difference between these types of arrangement. In a defined benefit scheme, your pension is calculated as a fraction of your salary for each year of service with the University. DB schemes can be final salary (where the pension is a fraction of your salary when you leave the University) or career average (where the fraction is applied to your salary across your career with the University). UASLAS currently provides a mix of final salary and career average, depending on when you joined UASLAS. For an employee in a DB scheme, your annual pension income when you retire is known, or can be estimated with a good degree of certainty, and the risks associated with the cost of providing this level of pension lie with the University. Members generally pay a fixed percentage of their salary, but the employer contribution rate can vary. In a defined contribution scheme, the rate of contributions paid by both the member and the employer are known in advance but there is no certainty about the amount of pension income you will receive when you retire. The contributions are invested in a range of asset types (such as shares or company/government bonds). For the employee, the benefits they receive will depend upon how these assets perform and so, particularly in the early years, they can only be estimated based on assumptions about future investment performance. DC schemes can offer members a lot of flexibility. For example, the member contribution rate can vary according to the member s wishes (often with associated changes in the amount the employer pays), there will be a range of investment choices for the contributions, with different levels of associated risk, and the member can choose how they take their benefits at retirement (there is no requirement to actually buy a pension). Risk in a DC scheme sits with the employee; if the fund at retirement is small due to poor investment performance, your pension when you retire will be smaller. A summary of the differences between DB and DC is provided in Appendix A. 3

5 The remainder of this guide explains why changes to UASLAS are needed, the proposed options for future benefit provision and gives details of who to contact if you have any queries or comments. This consultation is your opportunity to give us your thoughts on the proposed changes and we very much welcome your feedback. A series of frequently asked questions (FAQs) has been included in Appendix B. An address (uaslas@abdn.ac.uk) is available throughout the consultation period for you to raise any questions and submit feedback. Alternatively, questions and feedback can be put in writing to the following address: Suzanne Laing Pension Administrator Finance (Room 54) University Office Old Aberdeen As previously stated changes will not be implemented before 1 January 2019, however depending on the outcome of the consultation and further discussions with trade unions the changes may be deferred by a maximum of 3 months. 2. UASLAS Details Trustee Responsibilities UASLAS is set up as a Trust and its assets are held separately from University assets. Trustees are appointed to run UASLAS under the rules which govern it, with the primary responsibility to look after the benefits already earned by members. UASLAS Trustees The current UASLAS Trustees are: Ms Jacquelynn Craw Mrs Caroline Inglis Mr David Beattie Mr Mark Whittington Mrs Diane Massie Mr David Walton Independent Chairwoman University Secretary Director of Finance University Court nominated Member-nominated Member-nominated University Responsibilities The University is responsible for funding UASLAS so that the Trustees have enough money to pay the benefits already earned by members, and for deciding what future benefits are provided. Role of the Pensions Regulator The Pensions Regulator (TPR) is the UK regulator of workplace pension schemes. It works with trustees, employers, pension specialists and business advisers, giving guidance on what is expected of them and taking action where it believes trustees or employers are failing in their duty. 4

6 Current UASLAS Benefits For service from 1 August 2011, UASLAS has been a career average revalued earnings (CARE) defined benefit arrangement. You build up benefit each year based on your pensionable salary (broadly your basic pay) in that year; the benefit built up in a year is adjusted prior to coming into payment to take account of inflation (this is known as revaluation ). Appendix C sets out an example. You earn a pension of 1/80 th of your pensionable salary and a tax-free lump sum of 3/80th of your pensionable salary for each year of pensionable service. Benefits for service up to 31 July 2011 are provided on a final salary defined benefit basis. All benefits earned in UASLAS to date are protected by law and are unaffected by the proposed changes. 3. Your Existing Benefits Earned up to 31 December 2018 As explained earlier, your benefits earned up to 31 December 2018 are not affected by any change to the future build-up of benefits. They are protected by law. Depending on when you joined UASLAS you will have different parts to your pension. For service before 1 August 2011 Your benefits earned up to 31 July 2011 will be calculated based on your pensionable service to 31 July 2011 and your final pensionable salary when you retire or leave. Following this consultation, regardless of the option chosen, your benefits earned up to 31 July 2011 will continue to be linked to your salary. For service between 1 August 2011 and 31 December 2018 Following this consultation, regardless of the option chosen, your benefits earned from 1 August 2011 (or date of joining UASLAS if later) to 31 December 2018 will continue to revalue. The pension and lump sum earned up to 31 December 2018 will increase by the annual increase in inflation up to a maximum of 2.5% p.a. until your date of retirement. These benefits will be added to those earned from 1 January 2019 to make up your total retirement benefit package from the University. 4. Future Pensions The University has seriously considered the future of UASLAS and has decided that, in order to protect the security of the benefits already earned by members at a cost that is affordable to the University, it is necessary to make some changes. Following this decision, the University has considered a number of options. The University understands that the benefits provided by UASLAS are important to members and has, therefore, constructed a proposal to continue to provide meaningful benefits for employees. For UASLAS members and the University, the changes being proposed aim to provide a fair balance between helping to protect members existing benefits whilst continuing to provide an attractive package of benefits for the future. 5

7 The Proposal It is proposed that benefits for future service from 1 January 2019 will be different to what is currently being provided. Currently, the University is actively considering 3 options for the benefits provided. These are described in detail below. Option 1 Defined Benefit As mentioned earlier, the 2016 valuation disclosed that the cost of providing the existing benefits has reached a level that is unaffordable for the University. Hence the rate at which the DB element builds up must be reduced. The proposal is that you will build up a pension of 1/100 th of your base pay; a lump sum of 3 times your pension will also build up. These benefits will be revalued in line with inflation (as measured by the change in the Consumer Price Index (CPI)) up to a maximum of 2.5% each year. A DB structure will apply for all of your pensionable salary. Every year you would earn 1/100 th of your salary and at the end of each year your benefits are calculated and banked. These benefits will be revalued in line with inflation (as measured by the change in CPI) up to a maximum of 2.5% each year. Your contribution to the scheme is 8% and the University pays the balance of the cost. The University will consider whether it is possible to offer a degree of flexibility in the contribution rate within the DB scheme. This may not be possible for administrative or cost reasons. Example Assume that your pensionable salary is 22,000. Your pension earned in the year is: Defined Benefit 22,000 x 1/ During the year you have built up a DB pension of 220 p.a. (with a lump sum of 660). In the following year, your salary increases to 24,000. Your pension earned in the year is: Defined Benefit 24,000 x 1/ In addition, the pension built up in the first year is revalued to allow for inflation. If inflation since the first year has been 2.5%, this would give you an annual pension income in retirement of: 220 x = 226 p.a. At the end of the second year, you have built up a total DB pension of 466 p.a. ( 226 plus 240), with a lump sum of 1,398. 6

8 Option 2 Defined Contribution The University will contribute a percentage of your pensionable salary (based on the level of your contribution) into an individual investment fund in your name. The amount paid will depend on how much you decide to contribute. Over time, the value of your fund will change and its value at any point in time will depend on: How much has been paid in; The length of time that each contribution has been invested; Investment performance over this period; and The charges deducted Note that the value of the fund can go down as well as up. The amount that you receive when you retire is not defined by a formula and there is no guarantee about the amount of annual pension income you will receive. When you reach retirement, you decide how to draw benefits from the scheme; the value of these benefits will depend on the value of your fund. You can decide to: Secure an income for life through an insurance contract, known as an annuity; Take some of your fund as a tax-free lump sum (up to a maximum 25% of your fund), with the balance used to provide income for life; Take the whole fund value as a lump sum, although part of this will be subject to income tax; and Leave your fund invested after retirement and take out part of it each year, known as drawdown. The University wishes to offer a degree of flexibility in the member contribution rate and also to encourage employees to make good provision for their retirement. This may enable staff who may not currently be able to contribute the normal rate to join the scheme, whilst also offering an enhanced pension to those wishing to contribute slightly more. The proposed contributions for the DC arrangement (as a percentage of basic pay) are: Contribution Rate Employee University % % Lower Rate 3 6 Default Rate* 6 9 Higher Rate 9 12 * Scheme members would enter at the default rate and given the opportunity to change to the higher or lower rate as appropriate. Example: You have a pensionable salary of 22,000 and opt to contribute 3% of your salary to the scheme; the University contributes 6% of your salary. The total contribution to your individual fund over the year is: Contribution Your contribution 22,000 x 3% 660 University 22,000 x 6% 1,320 Total 1,980 A total of 1,980 has been added to your fund for investment. 7

9 The following year your salary increases to 24,000 and you decide to increase your pension contribution to 6%; as a result the University contribution increases to 9%. This year, the contribution to your pension fund is: Contribution Your contribution 24,000 x 6% 1,440 University 24,000 x 9% 2,160 Total 3,600 A further 3,600 is added to the fund for investment. After two years you have added 5,580 ( 1,980 plus 3,600) to your pension fund. This fund is invested on your behalf until you take your benefits; the value of your fund, and therefore the benefits you receive, depends on the performance of the investments. There is no certainty about the amount of annual pension income you will receive from this fund. The figure quoted assumes no investment return. On retirement, you will have a pension fund with a value based on the level of your contributions and the performance of the investments. There is no specific target level of income (unlike a DB scheme), but rather a pot that you draw on when you retire (the options are described above). A more detailed example is shown in Appendix D Option 3 Combination of Defined Benefit and Defined Contribution ( Hybrid ) The objective of this approach is to share some of the risks associated with pension provision. A core level of DB is provided on your base pay up to a set level, known as the salary threshold, which will initially be 22,214 (point 17 on the pay scale); it will change with the pay scale point. For pay above the threshold, the scheme will operate on a DC basis. The proposal is that you will build up a pension of 1/100 th of your base pay up to the salary threshold; a lump sum of 3 times your pension will also build up. These benefits will be revalued in line with inflation (as measured by the change in CPI) up to a maximum of 2.5% each year. You will contribute 8% of your base pay (up to the salary threshold) towards the DB element. The University will meet the balance of the cost. The University will consider whether it is possible to offer a degree of flexibility in the contribution rate within the DB element of the scheme. This may not be possible for administrative or cost reasons. Benefits for base pay in excess of the salary threshold will operate on a DC basis. Your contributions (being 8% of base pay above the salary threshold) will be invested in your pot, together with contributions from the University of 12% of base pay above the salary threshold. This combined method guarantees part of your pension (the defined benefit part) and provides an additional part based on the investment pot. Example: Assume again that your pensionable salary is 22,000. Your pension earned in the year is: Defined Benefit 22,000 x 1/ As you salary level is below the salary threshold, all of your pension is earned under the DB section and you do not earn anything under the DC section. During the year, you have built up a DB pension of 220 p.a. (with a lump sum of 660). 8

10 In the following year, assume the salary threshold increases 22,658 (i.e. by 2%) and your salary increases to 24,000. Your pension earned in the year is: Defined Benefit 22,658 x 1/ Defined Contribution Individual 1,342 x 8% 108 University 1,342 x 12% 161 Total 269 The DB pension at the start of the second year is revalued to allow for inflation to give: 220 x = 226 p.a. At the end of the second year, you have built up a total DB pension of 453 p.a. ( 226 plus 227) (with a lump sum of 1,359) and have invested 269 in your DC pot. An example of this hybrid scheme is shown in Appendix E. Summary of Options The following table summarises the pension benefits earned from the above examples for the two year period and compares these to the current benefits. The DC fund values do not make any allowance for investment returns over the period. Current Scheme Defined Benefit (Option 1) Defined Contribution (Option 2) Combined Scheme (Option 3) DB pension* NIL 453 DB lump sum 1,746 1,398 NIL 1,359 DC fund** NIL NIL 5, * Payable in each year of your life after retirement **You will have flexibility over how you take benefits in relation to the DC fund. You can buy an annuity, take some or all of it as a lump sum when you retire or leave it fully invested, drawing out part of it over future years as required. 9

11 5. Next Steps The consultation process is now underway and will end on 10 August During this time, you have the opportunity to put forward your questions and comments on the University's proposals. The University will give full consideration to them. We are also very interested to hear your views as to your preferred option, although please bear in mind that the final decision on the option will be made by the University. We are committed to supporting you as much as possible throughout the consultation process. We believe it is important for you to understand what the proposed changes mean for you. We will be running a series of presentations for staff during June: Thursday 21 June King s College Fraser Noble Lecture Theatre pm Foresterhill Polwarth Lecture Theatre pm King s College Regent Lecture Theatre pm* Friday 22 June Foresterhill Polwarth Lecture Theatre am* Foresterhill Polwarth Lecture Theatre pm King s College Regent Lecture Theatre pm Thursday 28 June King s College Regent Lecture Theatre pm Foresterhill Polwarth Lecture Theatre pm Foresterhill Polwarth Lecture Theatre pm* Friday 29 June King s College Regent Lecture Theatre am* Places must be booked beforehand by selecting the following link and searching for UASLAS. * These sessions will only run if there is sufficient interest. You are encouraged to attend one of these meetings to hear more about the proposed changes and to discuss any feedback, raise any concerns or queries you have. An address (uaslas@abdn.ac.uk) is available throughout the consultation period for you to raise any questions and to submit written feedback. Alternatively, questions and feedback can be put in writing to the following address: Suzanne Laing Pension Administrator Finance (Room 54) University Office Old Aberdeen Questions raised, together with their answers, will be collated and an updated FAQ document circulated during the consultation period and available at php The University is consulting with trade unions at the same time as consulting with staff and if you are a union member you may wish to discuss this with your union representative. You are also asked to complete the enclosed Member Consultation Survey to indicate your preferred option. Only one form should be completed and please only indicate one preferred choice. 10

12 Independent Financial Advice Pensions are a complex subject. Although the University can provide you with factual information regarding the proposed changes, neither the University nor its advisers can give you financial advice. You may wish to contact an Independent Financial Adviser (IFA) to discuss how these changes may impact your overall financial position in retirement. Details of your local advisers can be found by contacting At the end of the consultation period, the University will consider all feedback, including your views on the preferred option. A full update will be provided, along with full details of changes to benefits and details of what you need to do next. 11

13 Appendix A Defined Benefit v Defined Contribution Defined Benefit Defined Contribution Contributions Employer and Members (Member contributions usually fixed, Employer meets balance of cost) Employer and Members (Contribution levels fixed; can be choices as to level of Member contributions, with appropriate matching Employer contributions) Investment decisions Scheme Trustees Members Scheme Trustees will provide a short list to select from Income at retirement Known level of income as a fraction of salary (either salary at retirement or salary over career) Must take regular income in retirement with annual pension increases Will vary depending on how well investments have performed Significant flexibility for members over how benefits are taken Death in service Based on salary at death Lump sum and defined pension for dependant Common to link this to salary at death Tend to insure additional lump sum in place of dependant s pension Risk lies mainly with Employer Members Flexibility Limited flexibility Easier to give members choice over contribution levels, pattern of how benefits taken etc. 12

14 Appendix B Frequently Asked Questions 1. Why is the University proposing to make changes to UASLAS? The cost of financing UASLAS has increased significantly in recent years. The main reasons for the increase in cost are: People are living longer and, as a result, pensions are being paid for longer; Lower interest rates mean that scheme investments aren t expected to grow as much as they used to; Increasing complexity of pension legislation which has added significantly to the costs of running schemes. UASLAS represents a significant financial risk to the University and introducing these changes will help manage the risk and help to contain costs. The University is still committed to providing future accrual of benefits and to new employees being offered comparable benefits. 2. Will my contribution rate change under the new proposals? Defined Contribution option Yes your standard contribution will reduce to 6%. However you will be given the option to change to either 3% or 9%. The University s contribution will depend on the rate you choose. Defined Benefit / Hybrid options Yes, your contribution will increase to 8%. The University will consider whether it is possible to offer a degree of flexibility in the contribution rate within the DB scheme. This may not be possible for administrative or cost reasons. 3. Why can t the members just pay more and keep the existing defined benefit scheme? A range of options were considered before making these proposals. One option to enable the University to control its costs was to increase the rate of member contributions. However, based on latest estimates, the member contribution rate would have had to increase significantly; this was not considered affordable for the majority of members. Moreover, the University is uncomfortable with the level of risk associated with providing the current benefits. 4. Why cap annual CARE revaluation at 2.5% - what happens if inflation exceeds this? The 2.5% cap is applied to protect against the risk of a significant increase in liabilities in the event of high levels of inflation. This level of cap is consistent with the Government s minimum requirements for revaluation of benefits accrued after April 2009 for scheme leavers. If inflation exceeds 2.5% in any given year the value of your CARE benefits will increase by 2.5% but will reduce in real terms as the cost of living increases in line with inflation. 5. What happens if I leave before I retire? If you leave active membership before you retire you will be entitled to deferred benefits. Your deferred benefits will be based on the total of: Any final salary benefits you built up before 31 July 2011; Any CARE benefits built up to 31 December 2018; Benefits built up under the new option from 1 January 2019 up to your date of leaving. Deferred benefits built up before 31 July 2011 will increase in line with inflation each year (subject to a maximum of 5% p.a.) from the date you leave UASLAS until the date you subsequently retire. Deferred DB benefits accrued from 1 August 2011 will increase in line with inflation each year (subject to a maximum of 2.5% p.a.) from the date you leave UASLAS until the date you subsequently retire. 13

15 Any DC funds will remain invested for you until you retire, when this will be available to provide benefits. 6. How will the switch impact on my benefits? As explained in the consultation document, the change will not affect benefits built up to 31 December However, there will be an impact on the projected benefits provided in relation to future service from 1 January Hence the effect is dependent on your individual circumstances, e.g. the length of time you have been a member of UASLAS, how long you have until retirement, the level of price inflation in the future, how your salary has increased in the past and how you anticipate it will increase in the future. It will also be affected by the option selected by the University for future benefits. 7. What happens to benefits I have transferred into UASLAS? Any benefits you have transferred into UASLAS from other pension schemes prior to 1 January 2019 will be unaffected by the proposed changes. 8. What if I work part-time? The benefits that build up for you in future will be based on your actual part-time pensionable salary over that year. This is similar to the approach that applies to how benefits currently build up. 9. What do I need to do if I wish to continue to be a member of UASLAS? Defined Contribution option You will have to choose the level of contribution that you wish to invest in your pension. The standard contribution is 6% and you will not need to do anything if you choose this option. Further details of how to inform us of your choice will be issued in due course. You should also consider how you want the contributions to be invested for you. There will be a list of fund options available to you and also a default option if you do not express a preference. Defined Benefit / Hybrid options You do not need to do anything. The University and the Trustees will assume that you wish to continue as an active member of UASLAS, and will continue to deduct pension contributions from your salary after 31 December 2018 unless you confirm that you do not wish to continue as a member of UASLAS. Under the Hybrid option (Option 3), you should consider the investment options for the DC element of your benefit. 10. What if I do not want to continue to be a member of UASLAS? If you want to leave UASLAS as a result of the changes, but are not leaving the University, you should confirm this in writing to the University at the following address: Suzanne Laing Pension Administrator Finance (Room 54) University Office Old Aberdeen You will still be entitled to benefits based on your pensionable service to date and final pensionable salary at the date you leave UASLAS. However, you will not build up any further pension or tax-free lump sum for you or your spouse for service after you leave UASLAS nor will you be entitled to any further retirement or death in service benefits. You may wish to contact an Independent Financial Adviser (IFA) prior to making a decision to discuss how these changes may impact your overall financial position in retirement. 11. If I decide not to continue as a member of UASLAS now, can I re-join at a later date? If you cease being a member of UASLAS you may apply to re-join at a later date. However your admission will be at the discretion of the University. 14

16 12. When can I retire? UASLAS is intended to supplement the pension you receive from the State. The Government is gradually changing the age at which you will receive your State pension; it now varies depending on when you were born. The benefits you build up for service from 1 January 2019 will normally be paid if you retire at your State pension age. If you take them before this date, they will be reduced for early payment. Remember that this does not apply to benefits building up for service to 31 December If I joined UASLAS prior to 1 August 1994 and I am close to retirement now, how will the changes to my early retirement terms affect my benefits? There will be no changes to the pre 1994 member guarantee. If you were a member of UASLAS on 31 July 1994, special early retirement conditions apply to you as a result of equalisation of pension ages. Women can retire at any time from age 60 without any reduction in benefits and men can retire at age 60 without any reduction in benefits earned after 17 May This is consistent with European Law. 14. What happens if I die whilst an active member of UASLAS? The benefits payable on death whilst an active member will be as follows: a lump sum equal to 3 times your pensionable salary at the date of your death a lump sum equal to any contributions you have paid towards DB benefits under UASLAS (or contributions paid on your behalf through Pensions Plus a way to contribute to UASLAS that will save National Insurance and increase your take home pay) plus interest a spouse s pension equal to one half of the pension that you would have received had you retired at normal retirement date calculated using your pensionable salary at the date of your death., this will be calculated as one half of your pension based on: o o o Final salary pension accrued up to 31 July 2011 (based on pensionable salary at death); plus CARE pension accrued between 1 August 2011 and 31 December 2018 (revalued to date of death); plus Any CARE pension you could have accrued under the new benefit structure between 1 January 2019 and normal retirement date, assuming your pensionable salary at date of death remained unchanged. If the University decides to provide a Defined Contribution scheme for service from 1 January 2019, no CARE benefit will build up. In recognition of this, the final element of the above calculation will be replaced by an additional lump sum. 15. How will my pension increase during retirement? For pension benefits earned to 31 December 2018 There will be no change. Your pension earned prior to 1 August 2011 will increase in line with the Retail Prices Index, subject to a minimum of 3% per annum; pension earned after 31 July 2011 will increase in line with the annual increase in the Consumer Price Index (CPI), subject to a maximum annual increase of 5%. For pension benefits earned from 1 January 2019 Defined Contribution option The flexibility you have over benefit options extends to the level of increases you want to receive. If you decide to use your defined contribution pot to buy an increasing pension, the initial amount will be lower than if you choose a flat-rate pension. 15

17 Defined Benefit / Hybrid options The DB part of your pension will increase in line with the annual increase in the Consumer Price Index (CPI), subject to a maximum annual increase of 2.5%. 16. What is meant by the Retail Prices Index and Consumer Price Index? The Retail Prices Index (RPI) measures the changes in prices over a 12 month period. It is commonly used to measure price inflation. The Consumer Price Index (CPI) is similar to the Retail Prices Index but it is calculated in a different way and excludes certain items, e.g. certain housing costs. 17. Does the University have the legal ability to make these changes? Does it need to get Government consent? Provided that the Trustees agree to the proposed changes, and there has been a consultation with affected members lasting at least 60 days, then the changes can be made. The University has been in discussion with the UASLAS Trustees since last year, which has been very helpful in shaping the University s proposals. There is no obligation to obtain Government consent to make changes to UASLAS. 18. Is there any guarantee that the University will not make any further changes to UASLAS? The University believes that the proposals form the basis of a sustainable pension policy. Currently it does not foresee any need to make further changes if these proposals are implemented, but it is unable to guarantee that there will be no further changes. 19. Can I give feedback about the changes? Yes. Presently, there is a consultation period during which you can provide feedback to the University regarding the proposed changes. The University is holding a number of meetings for Staff as follows:- Thursday 21 June King s College Fraser Noble Lecture Theatre pm Foresterhill Polwarth Lecture Theatre pm King s College Regent Lecture Theatre pm* Friday 22 June Foresterhill Polwarth Lecture Theatre am* Foresterhill Polwarth Lecture Theatre pm King s College Regent Lecture Theatre pm Thursday 28 June King s College Regent Lecture Theatre pm Foresterhill Polwarth Lecture Theatre pm Foresterhill Polwarth Lecture Theatre pm* Friday 29 June King s College Regent Lecture Theatre am* Places must be booked beforehand by selecting the following link and searching for UASLAS. * These sessions will only run if there is sufficient interest. You are encouraged to attend one of these meetings to hear more about the proposed changes and to discuss any feedback, concerns or queries you have. You can also get support from your trade union. An address (uaslas@abdn.ac.uk) is available throughout the consultation period for you to submit feedback, or raise any concerns or questions you may have. Alternatively, questions and feedback can be put in writing to the following address:- Suzanne Laing Pension Administrator Finance (Room 54) University Office Old Aberdeen 16

18 20. What happens at the end of the consultation process? The University will consider the responses received during the consultation period and aim to confirm the final details of the proposed changes and the new arrangements shortly after the end of this period. 17

19 Appendix C Defined Benefit Example (Current UASLAS Scheme) You join the University and work here for 5 years before retiring at 65. Your starting pensionable salary was 24,000; it is assumed to increase by 2% every year; price inflation is assumed to be 2.5% throughout the period. Note that actual inflation could vary. Year 1 24,000 * 1/80 th = 300 Year 2 24,480 * 1/80th = 306 Year 3 24,970 * 1/80th = 312 Year 4 25,469 * 1/80th = 318 Year 5 25,978 * 1/80th = 325 1,561 Pension Year 1 Benefit plus inflation = 331 Year 2 Benefit plus inflation = 330 Inflation Increases for previous year benefits (2.5% p.a.) Year 3 Benefit plus inflation = 328 Year 4 Benefit plus inflation = 326 Year 5 Benefit (no inflation) = 325 Total Pension on Retirement 1,640 Plus Lump Sum payable on retirement - 4,920 On retirement, after 5 years, your pension income is 1,640 p.a.; you will also receive a lump sum of 4,920. Once in payment, the pension will be increased in line with inflation every year until death. Assuming you live for 20 years after retirement, with average inflation of 2.5% p.a., the total benefit paid to you (including your lump sum at retirement) will be just under 47,

20 Appendix D Defined Contribution Example You join the University and work here for 5 years before retiring at 65. Your starting pensionable salary was 24,000; it is assumed to increase by 2% every year. You contribute 9% of your salary to your pension fund every year and the University contribution is 12%, a total contribution of 21% of your salary. The fund is assumed to grow in line with price inflation each year (at the rate of 2.5% p.a. net of investment expenses); note that this is not guaranteed. Year 1 24,000 * 21% = 5,040 Year 2 24,480 * 21% = 5,141 Year 3 24,970 * 21% = 5,244 Year 4 25,469 * 21% = 5,348 Year 5 25,798 * 21% = 5,455 26,228 Investment Growth 2.5% p.a. Pension Pot The value of this fund depends on the total contributions and the performance of investments over time. There is no guaranteed income on retirement 27,546 The Pension Pot is a sum of money available to you when you retire; you can choose how you use this money. The sum can be used to secure an annual income, or you may decide to leave the funds invested and draw out money gradually over your retirement. You will also have options to take a lump sum from the fund (and this may be payable free of tax). 19

21 Appendix E Hybrid Example You join the University and work here for 5 years before retiring at 65. Your starting pensionable salary was 24,000; it is assumed to increase by 2% every year. You are provided with a defined benefit pension (based on 100ths of salary) up to a threshold of 22,214; salary above the threshold is pensioned on a defined contribution basis (you contribute 8% of salary above the threshold, the University pays 12%). Price inflation is assumed to be 2.5% throughout the period, as is the rate of growth in the defined contribution fund; the salary threshold is assumed to increase with pay. Defined Benefit Year 1 22,214 * 1/100 th = 222 Year 2 22,658 * 1/100 th = 227 Year 3 23,111 * 1/100 th = 231 Year 4 23,574 * 1/100 th = 236 Year 5 24,045 * 1/100th = 240 1,156 Inflation Increases for previous year benefits (2.5% p.a.) Defined Benefit Pension Total Pension on Retirement 1,214 Plus Lump Sum payable on retirement - 3,642 PLUS Defined Contribution Year 1 1,786 * 20% = 357 Year 2 1,822 * 20% = 364 Year 3 1,858 * 20% = 372 Year 4 1,895 * 20% = 379 Year 5 1,933 * 20% = 387 1,859 Investment Growth 2.5% p.a. Pension Pot The value of this fund depends on the total contributions and the performance of investments over time. There is no guaranteed income on retirement 1,952 The Pension Pot is a sum of money available to you when you retire; you can choose how you use this money. The sum can be used to secure an annual income, or you may decide to leave the funds invested and draw out money gradually over your retirement. You will also have options to take a lump sum from the fund (and this may be payable free of tax). Your pension has two parts, a lump sum of 3,642 plus a guaranteed income of 1,214 p.a. which will increase by inflation every year. In addition, you will have a pension fund of 1,952 and can decide whether to take some or all of this as a lump sum or invest it for an additional annual income. 20

22 Appendix F Options Summary Up to 31 December 2018 Option 1 DB Only Option 2- DC Only Option 3 Hybrid Pensionable salary Your current basic annual salary or wages (excluding ad hoc overtime, but including any contractual overtime). Pensionable salary is calculated before any adjustments are made to your salary due to the Pensions Plus arrangements. 21 Final pensionable salary The greater of: Your pensionable salary averaged over the last year of service, ending at your normal retirement age or the date you retire or leave the scheme, if earlier, rounded to the nearest 1; and The highest average of any three consecutive pensionable salaries prevailing on 1 August in the 13 years ending at your normal retirement age or the date you retire or leave the scheme, if earlier, rounded to the nearest 1. Note that only benefits accrued in respect of service prior to 1 August 2011 are based on final pensionable salary Note that only benefits accrued in respect of service prior to 1 August 2011 are based on final pensionable salary Note that only benefits accrued in respect of service prior to 1 August 2011 are based on final pensionable salary

23 Up to 31 December 2018 Option 1 DB Only Option 2- DC Only Option 3 Hybrid Pensionable service The number of years and complete months of your service after becoming a contributing member of UASLAS. 22 Member contribution rate 7.05% of pensionable salary. Under Pensions Plus, you have the option of not paying any contributions. Instead, your contractual gross pay is reduced by 7.05% and the University pays contributions of an equivalent amount on your behalf into UASLAS. 8% of pensionable salary There are 3 contribution rate options: Lower rate: 3% Standard rate: 6% Higher rate: 9% 8% of pensionable salary University contribution rate Balance of cost Currently 17.5% of pensionable salary Balance of cost The University contribution for future build-up of benefit depends on the member rate as follows: Balance of cost Lower rate: 6% (Member 3%) Standard rate: 9% (Member 6%) Higher rate: 12% (Member 9%) In addition, the University meets the balance of cost for past benefits

24 Up to 31 December 2018 Option 1 DB Only Option 2- DC Only Option 3 Hybrid How your pension is worked out Benefits earned: Up to 31 July 2011 Benefits earned: Up to 31 December 2018 Benefits earned: Up to 31 December 2018 Benefits earned: Up to 31 December /80 th of final pensionable salary for each year of service to 31 July August 2011 to 31 December /80 th of pensionable salary for each year of service from 1 August The amount will be revalued each year in line with inflation (subject to a maximum of 5% p.a.) until you retire. Not applicable 1/100 th of pensionable salary for each year. The amount will be revalued each year in line with inflation (subject to a maximum of 2.5% p.a.) until you retire. Employee and University contributions are invested to provide a fund at retirement. You have a range of options to choose how to fund your retirement, e.g. buy an annual pension, take a lump sum, remain invested and take amounts over future years. 1/100 th of pensionable salary up to a salary threshold (currently 22,214) for each year. The amount will be revalued each year in line with inflation (subject to a maximum of 2.5% p.a.) until you retire. Plus Employee and University contributions on pensionable salary in excess the salary threshold. (8% from employee and 12% from employer) are invested to provide a fund at retirement.

25 Up to 31 December 2018 Option 1 DB Only Option 2- DC Only Option 3 Hybrid How your lump sum is worked out Lump sum of 3 times pension (as calculated above). Members can opt to give up some of their pension in return for an additional lump sum at retirement, subject to HMRC limits 3 times the DB pension. Additional lump sum may be provided (within HMRC limits) from giving up DB pension. 3 times the DB pension. Additional lump sum may be provided (within HMRC limits) from the DC fund at retirement and from giving up DB pension. 3 times the DB pension. Additional lump sum may be provided (within HMRC limits) from the DC fund at retirement and from giving up DB pension. 24 Benefits on death before retirement Pension payable to spouse or civil partner equal to one-half of the pension you would have received had you retired at your normal retirement age. Lump sum equal to refund of member contributions (with interest) plus 3 times pensionable salary at date of death. 50% of the DB pension. Lump sum equal to refund of member contributions (with interest) plus 3 times pensionable salary at date of death. - Lump sum equal to 7 times pensionable salary at date of death plus DC fund. 50% of the DB pension. Lump sum equal to 3 times pensionable salary at date of death plus DC fund. Benefits on death after retirement Pension payable to spouse or civil partner equal to one-half of the pension you are receiving at death, ignoring any pension given up for a greater lump sum. Lump sum, if you die in the first five years of your retirement, equal to the balance of the first five years worth of pension being paid at the date of your death.

26 Up to 31 December 2018 Option 1 DB Only Option 2- DC Only Option 3 Hybrid Normal Retirement Age 65 Link to State Pension Age Link to State Pension Age Link to State Pension Age Early Retirement You may retire before normal retirement date from age 55. Your pension will normally be reduced because it is being paid for longer. 25 If you were a member of UASLAS on 31 July 1994, special early retirement conditions apply to you. Women in this category can retire at any time from age 60 without any reduction in benefits and men can retire at age 60 without any reduction in benefits earned after 17 May In addition, any member of UASLAS (irrespective of date of joining) who is over age 60 and who has completed five years pensionable service may, with the University s consent, retire at any time between their 60th and 65th birthday with no reduction to their benefits for early payment No longer applies No longer applies No longer applies

27 Up to 31 December 2018 Option 1 DB Only Option 2- DC Only Option 3 Hybrid Pension Increases after retirement Benefits earned: Up to 31 July 2011 In line with the Retail Prices Index with a minimum of 3% p.a. Benefits earned: Up to 31 December 2018 Benefits earned: Up to 31 October 2018 Benefits earned: Up to 31 December August 2011 to 31 December 2018 In line with the Consumer Price Index, with a maximum of 5% p.a. In line with the Consumer Price Index subject to a maximum of 2.5% p.a. Flexibility the level of increase will depend on how you decide to take your fund. DB element in line with the Consumer Price Index subject to a maximum of 2.5% p.a. 26