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Learn about the recent changes in the SAUL superannuation scheme at the University of London, addressing funding deficits and altering pension calculation methods, effective April 2016. Important information for existing scheme members.
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Superannuation Arrangements for the University of London (SAUL) Changes to the Scheme Cindy Pike cpike@rvc.ac.uk January 2016
Background • Like many other defined benefit pension schemes, SAUL has seen reduced funding levels in recent times with the most recent formal valuation of the fund, as at March 2014, showing a shortfall of £118m. The estimated shortfall as at 31 March 2015 is £310m. • A shortfall of £118m means that the assets were sufficient to cover 94% of its liabilities and a shortfall of £310m means the assets cover 88% of liabilities. • There are a number of reasons for the increase in the deficit including, financial markets and increased life expectancy
Background • In order to address these issues, the SAUL Negotiating Committee proposed changes to the Scheme Trustees • The Trustee agreed to the proposals • Employer consultation ran from 13 July to 13 September 2015 • Recommendation to the Trustee, who agreed to the proposals • Agreed changes to be implemented 1 April 2016
Current Position • You will currently be a member of either the SAUL Final Salary section or the Career Average Revalued Earnings (CARE) Section of the SAUL scheme. • If you are unsure as to which scheme you are currently contributing, the general rule is as follows:- • If you joined the scheme for the first time prior to July 2012, it is likely that you are a member of the Final Salary Scheme • If you joined the scheme for the first time after July 2012, you will be a member of the Career Average Revalued Earnings Section of the scheme
What is changing? • For members of the Career Average Revalued Earnings (CARE) Section of the scheme, there is no change in terms of the calculation of membership up to 31 March 2016
What is changing? • For members of the Final Salary Scheme, SAUL will calculate your pension based on your pensionable salary at 31 March 2016 • When SAUL calculate your pension, a period of additional pensionable service will be added as a condition of ending the Final Salary Scheme. • The amount of extra pensionable service you get will depend on your age on 31 March 2016: • Age on 31 March 2016Service Enhancement • age under 61 5% • 62 4% • 63 3% • 64 2% • 65 1% • age over 65 Nil • Your total pension calculation as at 31 March 2016 will then be adjusted annually to take into account inflation, subject to published caps.
Example • John is aged 52 and has 20 years service in the Final Salary Scheme at 31 March 2016. His pensionable salary is £24k. • John will receive a service enhancement of 5% of his service – one year. • SAUL will therefore calculate John’s pension to 31 March 2016 as follows:- • £24,000 x 21 years = £6,300pa pension • 80 • John’s pension will be revalued annually in line with inflation up to a capped limit
Future SAUL • All members will move into the new CARE plan from 1 April 2016 • All members will continue to pay contributions at the rate of 6% of pensionable pay • Employer contribution rate increases to 16% (from 13%) with effect from 1 April 2016 • The accrual rate in the new CARE scheme will be 1/75th • Overtime is included in CARE salary • Normal Pension Date = last day of the month before your 65th birthday, increasing in line with State Pension Age • Pensions are reduced for early retirement although benefits built up by Final Salary Scheme members before 1 April 2016 will not be reduced
Current Calculation Methods • CARE Scheme • Currently pension is calculated in the CARE scheme based on salary each year and then increased in line with inflation. • You receive 1/80 of salary for each complete year you pay into the scheme. • On retirement, the standard calculation for your tax free lump sum is three times your pension.
Final Salary Scheme • Currently pension is calculated in the Final Salary Scheme based on your final pensionable salary. • You receive 1/80 of salary for each complete year you pay into the scheme. • On retirement, the standard calculation for your tax free lump sum is three times your pension. Current Calculation Methods
Example Final Salary Scheme Member with five years service on a salary of £24,000pa. Calculation as at the end of the fifth year of service: • £24,000 x 5 years = £1,500pa pension • 80
Summary of Changes • New CARE Scheme has an accrual rate of 1/75 – previously 1/80 for each year of service • Normal pension age increases to 65 from 60 and then increasing in line with the State Pension Age • Overtime is included in the salary calculation – unchanged from existing CARE scheme but in Final Salary scheme, currently only basic pay and permanent allowances are pensionable • Capped pension increases • Combining periods of service or transferring service into the SAUL scheme will not be possible after 31 March 2016 • http://www.saul.org.uk/1/972
Changes to the State Pension Scheme • On 6 April 2016 the current basic state pension and state second pension (S2P) will be abolished and replaced by a single-tier state pension. This will mean the end of contracting-out. • Currently members of contracted-out schemes pay a lower rate of National Insurance than non-members. The abolition of contracting-out will therefore have cost implications for both employers and employees. As a result, employers contributions will increase by 3.4% (of relevant earnings) and employees' will increase by 1.4% (of relevant earnings). The relevant earnings for this purpose being employees' earnings between £153 and £770 a week.
