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The Threat to Your USS Pension

The Threat to Your USS Pension. Type of Scheme. USS currently a Defined Benefit Scheme Pension based on final salary + length of service Pension benefits are known Risks carried by scheme (& employers!) Other type is Defined Contribution Payments invested

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The Threat to Your USS Pension

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  1. The Threat to Your USS Pension

  2. Type of Scheme USS currently a Defined Benefit Scheme Pension based on final salary + length of service Pension benefits are known Risks carried by scheme (& employers!) Other type is Defined Contribution Payments invested Benefits dependent on investments Risks carried by members

  3. Current USS Benefits Employee contribution 6.35% gross salary For each year's contributions: Pension 1/80th of final salary Lump sum 3/80ths of final salary Pension indexed by pension increase order (which sets official pensions) Members aged 55+ have right to immediate unreduced pension on redundancy Dependents' pensions

  4. USS Governance Joint Negotiating Committee (JNC) must approve any rule changes Equal UCU and Employer representation Independent chair (Sir Andrew Cubie) Chair has casting vote Casting vote unused until 7/7/10 Joint Review Group (JRG) formed as subcommittee in 2008

  5. Remit of JRG USS Executive and Mercers (scheme actuary) produced report on risks and funding issues of USS scheme. JRG to review this and propose scheme changes to address these. Proposals should have gone to JNC on 30th April for formal decision.

  6. Valuations 2008 Triennial Valuation: 103% funded (31/03/2008) 2009 74% funded (31/03/2009) USS actuary advises 0.9% increase in contributions are likely to be needed over next 2 valuations due to longevity. Current Contributions: - Employers: 16% (recent 2% increase for longevity) - Employees: 6.35% (fixed in current USS Rules)

  7. Main Risks Longevity Longevity has increased considerably But how long will this continue? Investment Strategy Reduced risk = Lower returns Salaries Risk

  8. Timeline JRG ended without agreement in mid-April On last day, employers' lead negotiator suggested a compromise which was accceptable to UCU negotiators After USS staff had typed up draft agreement, rest of employers' negotiators rejected it. Late on 29th April, employers sent new proposal by email. This was even worse than previous proposals. At JNC on 30th April latest employers' proposals were not considered. UCU tabled proposal submitted to JRG in January Both proposals went to JNC on July 7th Independent chair voted with employers

  9. UCU Proposal Normal Retirement Age of 65 for new entrants. Current members to retain existing retirement age unless break in service >= 2 yrs Increase in employee payments by average 1% of salary: Up to 25K: 6.35% (no increase) 25K – 75K: 7.35% (+1%) 75K-125K: 8.35% (+2%) 125K + : 9.35% (+3%) Cost-sharing for future service: 65% Employers : 35% Employees. Flexible retirement: reduce hours and/or FTE salary, draw part pension Actuarial projection is that these changes would mean no extra increases to contributions at 2011 Triennial Valuation.

  10. Employers’ Proposal (from 1st April 2011):Existing Members Born Before 1st April 1956 Remain in final-salary scheme Employee contributions increased from 6.35% to 7.5% Retain existing retirement arrangements Pension accrued up to 1st April 2011 indexed by pension increase order Pension accrued from 1st April 2011 indexed at CPI with 5% cap If break in service >= 1 month: Service accrued from 1 April 2011 to break “poisoned” by 2.5% CPI cap If break in service > 6 months: CARE with NPA 65 for post-break service (see following slide)

  11. Employers’ Proposal (from 1st April 2011):Existing Members Born on or after 1st April 1956 Normal Retirement Age of 65 for all members born on or after 1st April 1956 NRA then to track State Pension Age Remain in final-salary scheme Employee contribution increased from 6.35% to 7.5% Service accrued up to 1st April 2011: Pension calculated on pensionable age 63½ or CPA if lower Pension indexed by pension increase order Service accrued from 1st April 2011: Pension calculated on new NRA (65 → SPA) Pension indexed at CPI with 5% cap If break in service >= 1 month: Service accrued from 1 April 2011 to break “poisoned” by 2.5% CPI cap If break in service > 6 months: Post-break service in career average (CARE) scheme (see next slide)

  12. Employers’ Proposal (from 1st April 2011):Members Joining From 1st April 2011 Normal Retirement Age of 65 NRA then to track State Pension Age Career Average (CARE) scheme for all new members: Pension of 1/80th for each year of contributions Tax-free lump sum of 3/80ths Revaluation: full CPI up to 5% Half CPI between 5% and 10% No revaluation for CPI above 10% Pension indexed at CPI with 5% cap If break in service <= 1 month: Service accrued before break “poisoned” by 2.5% CPI cap Major cut in benefit for new members: Lecturer B (A/R 8) retiring on point 43 will lose ~ 22.5% in both pension and lump sum, loss over retirement £92,916 at 2010 prices Senior Lecturer (A/R 9) retiring on point 50 will lose ~ 26% in both pension and lump sum, loss over retirement £130,554 at 2010 prices

  13. Employers’ Proposal (from 1st April 2011):Changes Affecting All Members Right to unreduced pension on redundancy disappears 1st April 2013 Flexible retirement on reduced hours (but not reduced FTE salary) – minimum reduction of 20% Cost-sharing 65% / 35% for both past and future service Right to draw pension from age 55 subject to actuarial reduction (currently ~4% for every year below pension age) Dependents' pensions + death-in-service lump sum reduced in proportion to member's pension

  14. UCU Position • UCU had asked Bryn Davis (TUC actuary) to comment on proposals • Confirmed view of USS actuary that UCU proposals are sufficient to address funding shortfall • UCU believes employers using worst-case scenarios to justify benefits cut • Employers' long-term aim is to see their contributions fall from current 16% to 12% or lower • Alleged £17bn deficit is scaremongering and without foundation

  15. Wider Implications (1) EPF proposals would make USS inferior to TPS Pension + lump sum reduced by about a quarter vs final salary for typical career paths In order to match final-salary benefit, CARE members would need to pay 100% salary AVCs (i.e. work for no take-home pay!) for final 2.5 - 3 years before retirement Inflation capping in CARE scheme means a few years of high inflation near retirement could erode your pension Inflation capping of deferred benefits means a break in service of 1 month could erode earlier benefits (one year of CPI at 12.5% will reduce earlier benefits by 10%) FTC employees and women who take career breaks will be hardest hit

  16. Wider Implications (2) Someone who leaves USS (or has a break in service) 10 or 20 years before retirement could see deferred benefit reduced to a pittance by inflation Anyone who moves between pre-92 and post-92 employers (or has a period of employment outside UK) will be at the same risk How long will final-salary scheme survive? If you want a better pension, have a career in post-92 institutions???

  17. What Happens Next? 60-day Formal consultation commenced on 20/10/10 All UCU branches in participating institutions must respond to consultation UCU is calling for USS to ballot all members on both sets of proposals Rule changes will take some time to draft, but will then go to next JNC 20/1/11 If no movement in employers' position UCU will move towards ballot on industrial action

  18. What Can YOU Do? • Current threat to USS can only be countered by collective action from UCU • Ensure your colleagues understand the threat • Encourage colleagues who are not UCU members to join immediately • Ensure future academics (your PhD students) are aware of the threat to their pensions – they have most to lose • If a ballot of USS members is held, vote for UCU proposals and against EPF proposals • Attend UCU general meetings and rallies • Volunteer as a departmental rep • Prepare for serious industrial action later this year • If industrial action is called, give your total support

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