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USS Briefing: July 2014

USS Briefing: July 2014. Geraldine Egan National Pension Official. 2008 to 2011. 2008 Employers’ contributions up from 14% to 16% Final salary protected for existing staff (but changes to inflation capping)

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USS Briefing: July 2014

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  1. USS Briefing: July 2014 Geraldine Egan National Pension Official

  2. 2008 to 2011 • 2008 Employers’ contributions up from 14% to 16% • Final salary protected for existing staff (but changes to inflation capping) • New career-average revalued benefits (CRB) scheme for new entrants implemented by the USS board • Flexible retirement • Removal of right for an unreduced pension if made redundant • Dispute and industrial action • Agree ongoing review and extension of right to unreduced pension (stops this October)

  3. HOW IS THE FUND VALUED? • Projected cost of future benefits (liabilities) compared to existing assets + expected contributions + investment return • USS use a Gilts+ method to calculate the discount rate (projected return from investment) • Desire to de-risk (tPR pressure, contribution volatility) • UCU have challenged the method used/promoting use of an internal rate of return, rather than Gilts as a proxy • USS asset base – c.20% in gilts • More accurate to use our suggested method • Impact of Quantitative Easing

  4. FUND VALUATIONS

  5. USS FINANCIAL MANAGEMENT PLAN • Requested by The Pension Regulator (tPR) • Comprehensive approach • Independent review of employers’ covenant • Approach to deficit recovery and investment strategy (de-risking) • Ernst and Young report on ability to pay increased contributions • Employer bands – up to 21%; 23% to 25% • Employers’ response is to dispute findings but also to accept contributions from 16% to 18%

  6. THREE COMPONENTS • Past service deficit • Future service costs • De-risking assumptions USS BOARD’S GUIDING PRINCIPLES • Reliance of the scheme on the sector • Stability of contributions • Investment risk and tail risk CONTRACTING OUT CHANGES Employers pay 3.4% more NI and employees 1.2% more

  7. WHAT CHANGES ARE UNDER DISCUSSION? UCU proposal: Teachers’ Pension Scheme (TPS) for all • 1/57th accrual rate • No automatic lump sum (commutation at 12:1) • Revaluation at CPI + 1.6% • Recognition of incremental approach Employers’ consultation based on a Hybrid • Redefine the way that the salary link for past service is worked out from a link to the individual members’ final salary to CPI; • All future service (for all members) to be based on a; • Core defined benefit scheme modelled on the current career-average scheme for new starters up to a cap (the example given is £40k); • Above the cap, members and employers could contribute to a defined contribution scheme; • Employers would pay increased contributions of 18% to take account of the current deficit and if the funding situation improved would agree not to reduce their contribution rate below 16%, with any additional funds used to enhance scheme benefits.

  8. USS CRB section

  9. WHAT WOULD BE THE LIKELY EFFECT ON THE SCHEME? • Approximate costing(technical provisions/assumptions still under discussion) • Current contributions: Employer = 16%; FS = 7.5%; CRB = 6.5%; Blended = 23.4%

  10. POSSIBLE TIMETABLE

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