Changes to USS
Every effort has been made to present accurate information. Members are advised to check with their employer and/or the USS guides to confirm their understanding before acting on any information given. This presentation may be recorded for training and audit purposes.
Presentation for USS membersColin Busby and Eifion Morris APMI
Change
• Changes affecting current members
• Changes affecting new joiners
• Tax relief allowances from 2011
• Your questions
Changes affecting current members – Final salary section
Changes affecting current members 1 October 2011
Final Salary IntactHigher Normal
Pension Age
Higher contribution
Change to pension
increases
Flexible retirement
Higher Normal Pension Age (NPA)
What is Normal Pension Age?• USS has always had age 65 Normal ‘Retirement’ Age
• In practice all members could have a full pension at age 60 (assuming employer consents and retiring from active service)
• NPA will mean that you can still retire before 65, with employer consent, but service from 1 October 2011 will be reduced for each year/part year earlier than age 65
Exemption for those aged 55 or over on 1 October 2011• Anyone with a birthday on or before 1 October 1956 exempt from the
NPA change only
Normal Pension Age (NPA)65Example –retiring at 60 with employer consent
• 30/80 X £45,000
• Total =£16,875.00 pa
Before change
• 20/80 X £45,000 = £11,250.00• Plus• (10/80 X £45,000) X 0.793 =
£4,460.62• Total = £15,710.00 pa
After change
Age at 30 September 2011 50Service to 30 September 2011 20 yearsService since I October 2011 10 yearsPensionable salary £45,000.00
I’m buying extra service to retire at 60
You can still access your pension at 60
• Although it may be lower
You will still get the full value of the extra service you’re buying• On retirement from active membership you can still draw benefits
from Added Years in full from the age chosen when contract taken out
Change to redundancy terms
Redundancy• wef 1 October 2013 automatic provision of
full early retirement pension ends• employer can still choose to augment if
they wish
Normal Pension Age to be linked to rise in State Pension Ages
NPA to increase in line with State Pension Ages
• 1 April 2020 66 (unconfirmed date)• timetable to be announced for increase to State Pension Ages
Retirement before NPA will be classed as early retirement
• but only in respect of service after any increase
Future increases to NPA - 66
100% 65
100% 96% 65
April 2020 NPA increases to 66
Contribution increase to 7.5%
Salary (pa) Cost from take-home pay at 6.35% (per month)
Cost from take-home pay at 7.5% (per month)
Impact on take home pay each month
£10,000 £36.00 £43.60 - £ 7.60£15,000 £50.00 £61.80 - £11.80£30,000 £94.00 £116.80 - £22.80£45,000 £139.00 £173.60 - £34.60£60,000* £190.50 £225.00 - £34.50 £75,000* £238.00 £281.00 - £43.00
Increase from 6.35% to 7.5%
* 40% tax relief applied
Pension increase change
Rules before 1 October 2011
• Pensions (in payment and for deferred members) are reviewed each April in line with increases to ‘official pensions’• ‘official pensions’ = Civil Service, Police, Teachers, NHS• Official pensions increase in line with Consumer Price Inflation since April 2011
Pension increase change
Increases to official pensions USS increase
5% pa or less Increases matched
More than 5% pa but less than 15% pa 5% plus 50% of increases above 5%
More than 15% pa Overall ceiling of 10% pa
Introduction of cap to increases
• Cap on increases applied to service after 1 October 2011
Flexible retirement
Flexible retirement from age 55
• Subject to consent of employer and USS• 2 months’ notice required by USS
2 ‘Flexes’ possible, 3rd is full retirement• Hours must reduce by at least 20%• Draw up to 80% of benefits (minimum 20%)• Early retirement reductions apply before age 60
You continue to build up benefits
• If you flex, you continue to build up further benefits on a part-time basis and remaining benefits based on future full-time equivalent pensionable salary
Flexible retirement – early payment reductions
• Reductions apply to all service for pre 60 flexes
Before 60
Other changes
Late retirement (continuing after age 65)
• From 1 October 2011 employer must continue to pay their share
Exceeding 40 years in USS
• From 1 October 2011 employer must continue to pay their share
Employer is not required to back-date
What stays the same?
Death in service benefits• For existing contracts• For new contracts for final salary members
Incapacity benefits
Added years AVC contracts
USS money purchase AVCs (Prudential)
Transfers-in
Employer still contributes 16% of salaries
Changes affecting new entrants from 1 October 2011
Who joins new section?
OR
OR
Left the final salary section with deferred benefits after 1 October 2011 and rejoin the scheme more than 30 months after leaving
How does Career Revalued Benefits work?
Pension calculated each year & ‘banked’
• Formula is 1/80 X Salary for year• Plus 3 X Pension as tax-free cash
Banked pension & cash increased each year
Increases to official pensions USS increase
5% pa or less Increases matched
More than 5% pa but less than 15% pa 5% plus 50% of increases above 5%
More than 15% pa Overall ceiling of 10% pa
Cost sharing
Cost sharing
Historically employer has met full cost of benefits(in excess of employee contribution of 6.35% of salary)
Future rises in costs shared 35:65 between members and employers
Contribution rates reviewed normally every 3 years
Tax relief allowances from April 2011
Tax relief – pre April 2011
Tax relief
• 20%/40% tax relief on all contributions
Current limit on maximum pension pot is a capital value of £1.8 million
• Not many USS members affected
Tax relief changes – April 2011
Increase in capital value of benefits each year measured
• Capital value = Growth in pension X factor (19:1 for USS)• Allowance for inflation on benefits already built up
If capital value more than limit of £50,000 from April 2011 tax charge applies
• Tax charge via annual return• Always in arrears• Clarification on how charge will be met
Maximum benefit value at retirement reducing to £1.5 million from April 2012
• Would affect USS members with 40 years’ service and £130,000 pa salary
Salary at start of year
Salary at end of year (5% increase) Pension and lump sum accrual (19:1)
10 years 20 years 30 years 40 years
£50,000 £52,500 £14,499 £16,756 £19,012 £21,268
£60,000 £63,000 £17,399 £20,107 £22,814 £25,522
£70,000 £73,500 £20,299 £23,458 £26,617 £29,775
£80,000 £84,000 £23,199 £26,809 £30,419 £34,029
£90,000 £94,500 £26,099 £30,160 £34,221 £38,283
£100,000 £105,000 £28,999 £33,511 £38,024 £42,536
£110,000 £115,500 £31,899 £36,862 £41,826 £46,790
£120,000 £126,000 £34,799 £40,214 £45,629 £51,044
£130,000 £136,500 £37,698 £43,565 £49,431 £55,297
£140,000 £147,000 £40,598 £46,916 £53,233 £59,551
£150,000 £157,500 £43,498 £50,267 £57,036 £63,804
£160,000 £168,000 £46,398 £53,618 £60,838 £68,058
£170,000 £178,500 £49,298 £56,969 £64,640 £72,312
£180,000 £189,000 £52,198 £60,320 £68,443 £76,565
£190,000 £199,500 £55,098 £63,671 £72,245 £80,819
£200,000 £210,000 £57,998 £67,023 £76,048 £85,073
£250,000 £262,500 £72,497 £83,778 £95,059 £106,341
Salary at start of year
Salary at end of year (10% increase)
Pension and lump sum accrual (19:1)
10 years 20 years 30 years 40 years
£50,000 £55,000 £20,437 £28,631 £36,824 £45,018
£60,000 £66,000 £24,524 £34,357 £44,189 £54,022
£70,000 £77,000 £28,612 £40,083 £51,554 £63,025
£80,000 £88,000 £32,699 £45,809 £58,919 £72,029
£90,000 £99,000 £36,786 £51,535 £66,284 £81,033
£100,000 £110,000 £40,874 £57,261 £73,649 £90,036
£110,000 £121,000 £44,961 £62,987 £81,014 £99,040
£120,000 £132,000 £49,049 £68,714 £88,379 £108,044
£130,000 £143,000 £53,136 £74,440 £95,743 £117,047
£140,000 £154,000 £57,223 £80,166 £103,108 £126,051
£150,000 £165,000 £61,311 £85,892 £110,473 £135,054
£160,000 £176,000 £65,398 £91,618 £117,838 £144,058
£170,000 £187,000 £69,485 £97,344 £125,203 £153,062
£180,000 £198,000 £73,573 £103,070 £132,568 £162,065
£190,000 £209,000 £77,660 £108,796 £139,933 £171,069
£200,000 £220,000 £81,748 £114,523 £147,298 £180,073
£250,000 £275,000 £102,184 £143,153 £184,122 £225,091
Salary at start of year
Salary at end of year (Promotion)
Pension and lump sum accrual (19:1)
10 years 20 years 30 years 40 years
£15,000 £20,000 £14,444 £25,214 £35,985 £46,755
£20,000 £30,000 £27,175 £49,452 £71,730 £94,007
£36,000 £45,000 £27,540 £46,264 £64,989 £83,713
£100,000 £250,000 £373,374 £722,261 £1,071,149 £1,420,036
AVC options for Final Salary members
AVC Options
Added years
• Existing contracts unchanged• Still payable in full from age stipulated in contract
• Pensions from contracts taken out from 1 October 2011 will have cap applied to pension increases
Money purchase (Prudential)
• No change
AVCs and the Annual Allowance
Still very attractive for most USS members
• You can pay in up to the £50,000 pa Annual Allowance• Receive full tax relief
Money Purchase AVC payments simply add annual contribution to work out Annual Allowance
• Annual Allowance without AVCs = £24,000• Scope to pay up to £26,000 in Money Purchase AVCs
Added Years AVCs will increase amount of service each year
• Calculation therefore based on increase in pension value over year, including Added Years AVCs
How to pay AVCs – Added Years
Added Years
Use modeller on www.uss.co.uk
Contact Pensions Office
Summary of changes
Final salary calculation retained for existing members and certain re-joiners
• Normal Pension Age now 65 (for future service)• Contribution rate increase to 7.5%• Pension increase changes• Flexible retirement• Changes for retirements due to redundancy• Revalued Benefits section of scheme for new entrants
More information
• Pensions office contacts• USS website – www.uss.co.uk• Prudential – www.pru.co.uk/uss
– 0800 515914
