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University of Stirling Pension Scheme

University of Stirling Pension Scheme. Consultation on proposed changes to the scheme May 2013. Today’s Agenda. Provide background to the proposal Explain the changes that are being proposed Next Steps Questions. The Consultation Process.

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University of Stirling Pension Scheme

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  1. University of Stirling Pension Scheme Consultation on proposed changes to the scheme May 2013

  2. Today’s Agenda • Provide background to the proposal • Explain the changes that are being proposed • Next Steps • Questions

  3. The Consultation Process • Legal requirement to consult with employees (for at least 60 days) • Consultation means ensuring that employees: • Understand the proposed changes • Have the opportunity to ask questions • Are given a forum for expressing their views, which the employer must consider • Consultation period runs to 19 June 2013

  4. Why are changes necessary? Every three years a pension scheme must undergo an actuarial valuation which is carried out by the scheme actuary. The Scheme Actuary compares the value of the scheme’s assets with the likely value of the benefits due to members. The aim is to check that the assets are building up and will support the benefits due to members and ensure that a suitable amount is set for future contributions to the scheme.

  5. USPS Finances

  6. USPS Finances The three year valuation as at 1st August 2012 is currently progressing. Early indications are that a sizeable deficit is remaining and that there will be upward pressure on the contribution rate.

  7. Why has the deficit arisen? • Life Expectancy People are living longer and as a result pensions must be paid over a longer period More than a quarter of people currently in the UK will live past 100, according to the government. • Investment Returns Lower investment returns and markets remain volatile • Increased regulation and compliance

  8. What happens to the deficit? • When a scheme is found to have insufficient assets (i.e. a deficit) the Trustees are required to prepare, and agree with the Employer (the University) a plan to make good this deficit (known as a recovery plan). This must be submitted to the Pensions Regulator. • The University will continue funding the deficit in USPS to ensure it is fully addressed. This is irrespective of what else happens to the scheme.

  9. Increasing Contributions

  10. The review of USPS The key aims of the review: • To continue to provide a defined benefit scheme • To achieve greater cost parity with USS • To control future cost increases • To achieve an employee/employer contribution balance in line with sector averages

  11. Defined Benefit v. Defined Contribution Defined Benefit The two most common forms of defined benefit scheme are: ‘final salary’ schemes and ‘career average revalued earnings schemes’ (CARE schemes) Both types of scheme use your pensionable salary as one part of the formula in order to calculate your pension Defined Contribution A defined contribution scheme provides benefits based upon the amount of money that is in YOUR own pension ‘pot’ when benefits are due to be paid. The amount in YOUR ‘pot’ at retirement will depend upon how much was put in by your employer and by YOU, the investment returns achieved on those contributions, and any costs which are charged against your growing ‘pot’.

  12. Options Considered • Cost sharing • Merger with USS

  13. The Proposals in Summary • USPS will close to new members • USPS will close to future benefit accrual for existing members as at 31st July 2013. • Current & prospective members will be offered membership of USS from 1st August 2013 under USS defined benefit Career Revalued Benefits section.

  14. What happens to 31st July 2013 • All final salary pension benefits accrued by current members up to 31st July 2013 will be protected and will not be affected by the proposed change. • Active members will become deferred members but with the retention of a final salary link.

  15. USPS Current Basis Calculation of pension benefit under final salary 1/80th Pensionable service Final Pensionable Salary Annual Pension

  16. Final Salary Link explained The current position • What happens if you stay in employment at the University until you retire? Your pension will be based on your final salary at the date of your retirement • What happens if you leave University employment before you retire? Your pension will be based on your final salary at the date you leave employment adjusted for inflation to your retirement date. • What happens if you are promoted? If as a result of being promoted you are no longer eligible for USPS membership your final salary link will cease at that point. Your pension will be based on your final salary at that date adjusted for inflation to your retirement.

  17. Final Salary Link explained On Closure • Your pension will be linked to your final salary a) Whilst you remain in employment at the University and b) Whilst you remain eligible for USPS membership (i.e. the normal USPS membership eligibility criteria before scheme closure) • Your pensionable service in USPS will cease at 31st July 2013.

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