Bristol UCU Pensions report – January 2016
(See also the national January UCU Pensions News at http://www.ucu.org.uk/uss)
Implementation of the scheme changes
From 1 April 2016 the Final Salary (FS) section of USS will be closed and a new scheme structure will be phased in – Career Revalued Benefits (CRB) for all, with a Defined Contribution (DC) section for salaries above the starting threshold of £55,000. Contribution rates will increase to 8% for all members (from 7.5% for existing FS members and 6.5% for existing CRB members). Employers will pay 18% (from 16%).
The precise scheme changes are complex and are being fully explained to members on the new USS website USS for the future, to which they should refer periodically to view the latest announcements:
The changes are being phased in:
• Since October 2015 it has not been possible for final salary members to start a new added years regular instalment AVC, or pay a lump sum added years AVC, or make a non-club transfer in (request for public sector club transfers will be accepted until 2 years after the date of joining USS).
• 1 April 2016: the new CRB section for all will be launched at an improved accrual rate of 1/75 (currently 1/80) and members will pay the new 8% contribution rate (and higher NI – see below).
• 1 October (TBC) the salary threshold of £55,000 (rising annually by the USS ‘capped CPI’ formula) will be introduced and employers will pay 12% of salary above that threshold into the member’s DC pot. All USS members will also have an option to pay additional voluntary contributions into a DC fund and contributions of up to 1% will be matched by the employer (the affordability test was based on the assumption that 80% of USS members will take up this option).
USS have imposed a moratorium until 1 April 2016 on the issuing of provisional retirement quotes for retirements between 1 April and 30 September 2016. Full quotes will be issued as normal. People who require a provisional quote are being pointed at the new Benefit Illustrator on USS for the future.
Design of the new DC section
In the autumn, USS emailed all active USS members to elicit their views on the DC section of the scheme. In practice, this was a desultory short multiple-choice survey of appetite to financial risk of the sort beloved by financial advisors. There was no opportunity to make discursive comment on the design of the scheme.
We still have no information on the proposed design of the hybrid scheme or the fund options that will be available to members, and it looks likely that we not see this until September 2016 at the earliest.
UCU are campaigning to challenge the methodology of the USS valuation prior to the start of the next valuation round. USS, UUK and UCU have formed a joint national working group to which selected academics with relevant expertise have been invited to contribute. Due to unclear notification, Bristol missed the boat to submit any names.
The participating academics have been asked to submit answers in less than 2000 word (total) to all these questions:
1. What are the key principles which you believe should be used in the valuation of pension schemes?
2. The gilts+ valuation methodology is the method currently adopted by the USS trustee. Do you consider that any developments to this approach are appropriate in the USS context and if so what do you believe those should be which are consistent with the principles outlines in question 1?
3. Do you consider there to be a better alternative approach to setting the discount rate which could be credibly accepted by the trustee and acceptable in the regulatory framework?
4. What is the provenance of such an alternative approach set out in your answer to question 3 with particular emphasis to the USS framework?
Branches have been urged to keep up pressure on our local employers to challenge UUK and their support for the current methodology. Unfortunately, we were unable to get sufficient signatories in time to submit a question to Court in November, and Andy Nield (University of Bristol Finance Director) has firmly rebuffed our suggestion to set up a local joint working group. Nonetheless, Pension Officer Ricky Tutin has interested two expert colleagues and will ask national office if their written responses to those questions could be included in the national deliberations. We will revisit this matter with Andy’s successor.
State Pension changes
The new State Pension that is being introduced on 1 April 2016 will affect every member because of the changes it will bring to their expected benefits and to their national insurance rates.
New State Pension
The current full state pension of £115 will rise to a much-touted £155 per week. However, the Government spin is undermined by the reality that there will be an extremely long transitional period during which people who have previously paid into contracted-out pension schemes (like USS) are unlikely to receive the new full rate. Currently 30 years of NI contributions are required to qualify for a full state pension, but 35 years of contracted-in NI contributions will be required for the full new rate. Because most occupational pension schemes opted out of the second state pension (in return for a reduced NI contribution) then long-term USS members are unlikely to achieve the required contributions. Though people will not get less than they would have got under the old scheme, an adjustment will be made, and it is estimated that only 22% of women and 50% of men in the general population who reach state pension age in 2016/17 will get the full amount. We suggest that members over 55 apply for a personalised state pension statement from:
Increases in National Insurance
As part of the change to the New State Pension, contracted-out status is being abolished. This means that members of an occupational pension scheme will pay an extra 1.4% in National Insurance on earnings between £153 and £770 per week. Employers will pay an extra 3.4% across the same range. This comes on top of the increase in USS contributions to 8% and will be noticeable in take-home pay, and these increases will have an impact on the University too (although, thankfully, the NI increase was factored in to the employer’s deliberations about the affordability of USS and alone will not precipitate further USS changes).