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U.G.P.S. Consultation

Learn about Defined Benefit vs. Defined Contribution pension schemes, UGPS key features, impact of proposed changes, and how they affect employee contributions and retirement benefits. Get insights into the Hutton Review and Osbourne's Spending Review, highlighting the need for reform and increasing life expectancy. Explore the influence of the Pensions Regulator and the scheme deficit on UGPS. Stay informed about the new proposal affecting the normal pension age, employee contribution rate, unreduced pension eligibility, and the introduction of a DC scheme. Discover the transitional arrangements set to be implemented to address retirement concerns for existing and new members.

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U.G.P.S. Consultation

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  1. U.G.P.S. Consultation 21st June 2013 – 20th September 2013

  2. Overview of Pension Schemes Defined Contribution – employees and employers pay a percentage of salary into a pension scheme. Contributions are invested and return determined by growth Defined Benefit – employees and employers pay a percentage of salary into a pension scheme. Return is determined by guaranteed formula UGPS is a defined benefit scheme

  3. Overview of Pension Schemes • Hutton Review “Need for reform”, “increasing life expectancy”, “unfair sharing” of the costs • Osbourne’s Spending Review 2010 The state pension age will now rise to 66 by 2026 with plans to increase to 68 by 2044 Public sector workers set to pay higher pension contributions

  4. Overview of UGPS Key features Final salary x years in scheme ÷ 80 = retirement pension Retirement pension x 3 = tax free cash lump sum Example Level 4 member of staff retires after 30 years service £20k x 30/80ths = £7,500 retirement pension £7,500 x 3 = £22,500 tax free cash lump sum

  5. Overview of UGPS Key features Death-in-service Pensions for spouses, civil-partners & dependents Example Level 4 member of staff on £20k dies in service a death gratuity of £80k would be payable

  6. Overview of UGPS • The Pensions Regulator The Pensions Regulator did not sign off the previous recovery plan – concerned about investment risk and high level of deficit • Scheme Deficit At the 2010 valuation the scheme deficit was £40m The scheme actuary estimates this could have risen to £100m

  7. Summary of proposed changes 1. The current final salary scheme will be retained for existing members but the scheme will close to new members. 2. The normal pension age will be linked to increases to the State Pension Age (SPA). 3. The employee contribution rate will increase to 7.5%. 4. The ability to take an unreduced pension from the age of 60 will be removed for future service.

  8. Summary of proposed changes 5. The contribution rate for members of the DC scheme will be 5%. 6. Cost sharing will be introduced and any increase in the joint contribution rate will be shared by employees and employers in an agreed ratio. 7. Transitional arrangements will be put in place for those nearing retirement.

  9. Closing the scheme to new members • Current position UGPS is a defined-benefits scheme which is open to new members Scheme is in deficit and under pressure from the Pensions Regulator to reform • In practice No impact on current staff – will only affect new University employees from 1 April 2014

  10. Normal Pension Age (NPA) of 65 • Current position UGPS has a ‘normal’ retirement age of 65 However, UGPS scheme rules allow retirement from age 60, with employers consent, without penalty • In practice University staff have been able to retire from age 60

  11. Normal Pension Age (NPA) of 65 • Proposal With effect from 1 April 2014 for future service the normal pension age will be 65 The normal pension age will increase in line with changes to the state pension age

  12. Employee Contribution Rate • Current position Employee contribution rate is 6% • Proposal Employee contribution rate to increase to 7.5%

  13. Employee Contribution Rate • Impact of change Member of staff on £20k p.a. currently paying 6% would pay £100 per month Increasing the contribution to 7.5% would see an increase to £125 per month • Net cost After income tax and NIC’s adjustments the real cost to this employee would be an additional £17.35 per month

  14. Ability to take an unreduced pension • Current position Employees may take their pension unreduced from age 60 • Proposal The ability to take an unreduced pension from age 60 will be removed for service after 31 March 2014.

  15. Contribution rate for DC Scheme • Proposal New entrants to the University will go into a defined contribution (DC) scheme The contribution rate for the DC scheme will be 5% No impact on current members though members could transfer to DC arrangement if preferred

  16. Cost sharing arrangements • Current position If the scheme needs more (or less) money the employer pays what is required Current funding position requires an employer contribution of 19.5% of salary Employees pay a fixed 6% and the employer pays the balance Employer contributions go up or down depending on the funding level of the scheme

  17. Transitional arrangements • Proposal Transitional arrangements will be put in place for those nearing retirement If aged over 55 at 1 April 2014 you will retain the ability to take an unreduced pension from age 60

  18. Summary of changes Summary of the proposed changes • The current final salary scheme will be retained for existing members but the scheme will close to new members. • The normal pension age will be linked to increases to the State Pension Age (SPA). • The employee contribution rate will increase to 7.5%. • The ability to take an unreduced pension from the age of 60 will be removed for future service. • The contribution rate for members of the DC scheme will be 5%. • Cost sharing will be introduced and any increase in the joint contribution rate will be shared by employees and employers in an agreed ratio. • Transitional arrangements will be put in place for those nearing retirement.

  19. Any questions? If you would like to respond to the consultation You can write to UGPS – Pensions Finance Office University of Glasgow University Avenue Glasgow G12 8QQ or email ugps-pensions@glasgow.ac.uk

  20. What if I want to retire early? Employee aged 50 at 31 March 2014 wants to retire age 60 at 31 March 2024 Employee has 30 years service and a salary of £20k Service for period 1 April 1994 to 31 March 2014 (20 years) would be reckonable in full Service for period 1 April 2014 to 31 March 2024 (10 years) would be reduced because it is being paid five years earlier than the normal pension age of 65 and become worth 8 years or Pension for period 1 April 1994 to 31 March 2014 (20 years) would be payable in full 20 years x £20k / 80 = £5,000 p.a. Pension for period 1 April 2014 to 31 March 2024 (20 years) would be reduced because it is being paid five years earlier than the normal pension age of 65 10 years x £20k / 80 = £2,500 p.a. less actuarial reduction of £500 p.a. = £2,000 p.a. Total pension payable £7,000 p.a. Please note: this is an illustrative example – actual figures would be provided on application

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