USS Pensions changes – a Summary
This is an outline of the main points: for an authoritative, detailed guide, please contact your pensions office or visit the USS website.
USS will be issuing more detailed guidelines which will be available from 1 October on their website.
USS will also be visiting the University on 10 October 2011 to tell members about the changes. There will be two sessions for members, one at 1:00pm and one at 3:00pm in Room G255, West Quadrangle, Main Building
From 1 October 2011, significant changes will occur to USS: some are applicable to all “active” members, some are related to your age on 1 October 2011, and some depend on whether you were a member before 1 October 2011.
This summary concentrates on staff who were members before 1 October. Staff who transfer from another employer and are already in the USS have the same pension rights as existing USS members at this University.
B. Final Salary scheme – all members
If you were a member on 1 October you are in the final salary scheme. This is a valuable benefit.
1. Your employee contribution rate rises from 6.35% to 7.5%. USS have provided a modeller that allows you to see the difference in your take home pay following the increase in contribution rates. The modeller can be accessed on the website
2. If, in the future, there is a requirement for the overall contribution rate (i.e. employers’ and employees’ contributions combined) to rise above 23.5% and assuming no other remedy is put in place, then the increase will be shared in the ratio of 65:35 between employer and employees respectively. Although employee contributions can rise, they cannot fall below their current level of 7.5% for those within the final salary section.
3. Increases in pensions: pension benefits deferred or in payment will be revalued annually by using the CPI (Consumer Prices Index) rather than the RPI. Please note that if you are currently accruing pension benefits in employment, these will rise with reference to your final salary, and not with CPI which is used primarily for pensions being paid.
Of course inflation may rise or fall: if the CPI increases by up to 5%, USS benefits will match that increase. If the CPI rises between 5 and 15%, USS benefits will increase by 5% plus one half of the increase between 5 and 15%; under current rules if inflation exceeds 15%, the overall USS benefit rise is capped at 10% (including the 5% referred to earlier).
4. Redundancy and pensions – Currently, if a member is made redundant then, so long as they are of pensionable age, they can access the benefits they have built up in the scheme to the point of retirement, unreduced. In order to compensate the scheme for having to pay out pensions early then the employer has to pay an Early Retirement Funding Charge (ERFC), sometimes called “Strain” costs.
For the next two years there will be no changes to these arrangements in order to allow for any ‘agreements’ that are already ‘in the system’ to work their way through to completion.
However, from 1 October 2013 if an employee is made redundant and qualifies for immediate payment of their benefits, any benefits paid will be subject to an early retirement reduction.
The employer may choose to augment the benefits by paying an early retirement funding charge but this will be at their sole discretion.
5. Flexible Retirement – this will only be with the employers consent. From 1 October 2011 USS members will be able to apply for flexible retirement and access benefits so long as both hours and salary are reduced by at least 20%.
As long as the minimum reduction for both hours and salary is met, a member will be able to access up to a maximum of 80% of the benefits that they have built up in the scheme.
Both the employer and employee would need to agree on the number of hours to be reduced, and this reduction would need to remain in force for at least a year. You would not subsequently be able to increase the hours worked in that job. The Scheme does not apply to variable time members (zero-hour contracted staff)
There can be a maximum of two flexible retirement events, but on the third occasion the member must retire fully. The minimum reduction in hours must be 20%, and all reductions must be in 20% portions of the full time hours.
The flexible pension must be taken in 20% portions of the full pension entitlement.
When working reduced hours (the flex period), the person continues to pay pension contributions on the reduced salary, and pension benefits accrue as for part-time staff.
USS will provide a modeller for a person to make an initial assessment of their situation: to obtain a detailed estimate, the employer would need to be approached, and discussions would need to start. Final authorisation to apply requires the employer’s consent.
If the employer’s consent is given, then USS needs 2 months notification to allow the change to occur.
C. Final Salary Scheme – members aged below 55 years at 1st October 2011
The “Normal Pension Age” for future service to be initially set at age 65 - this affects all current members as at 30 September 2011 unless you are already aged over 55 at that date.
At present USS members can retire at age 60, with their employer’s consent, with all benefits paid unreduced. In future, any pension related to service between 1 October 2011 and the date of retirement will be reduced according to an actuarial formula if taken prior to normal pension age. Benefits earned before 1 October 2011 are not affected in this way and will not be actuarially reduced.
How much will it be reduced by? Currently the actuary has set the cost of this in the region of 4% per year. If you retire 5 years before normal retirement age then that portion of your benefits earned between 1 October and your date of retirement would be reduced by approximately 20%.
The normal pension age in USS will not be fixed. As the state pension age moves upwards then so too will the normal pension age in USS. Again, this only affects benefits built up after any future change in the state pension age.
D. Final Salary Scheme – members aged 55 years or above at 1st October 2011
The Normal Pension Age issues outlined immediately above do not apply: instead the existing retirement arrangements apply – i.e. from age 60 (with the employer’s consent) and not subject to actuarial reduction.
That is the same as existed before the 1 October 2011, assuming you were 55 or older on that date.
E. Transition Arrangements
For staff promoted from jobs which are covered by the University’s own pension scheme, (UGPS) before 1 October 2013, they may join the final salary section of the scheme. After this date they would need to join the CRB section.
Employers can issue a member with a certificate confirming that if they return within 5 years to the same employer then they can re-join the final salary section. However, there has to be a realistic expectation and agreement in advance that they will return.
F. New starters after 1/10/11
Staff joining this university who are already members of USS have the same pension rights as existing staff at Glasgow.
New members of the scheme will no longer be eligible to join the final salary section of the scheme. Instead, new members will join what has been termed the ‘career re-valued benefits’ section or CRB as it will be known.
Benefits in the new section are calculated differently to the final salary section. Benefits will be worked out at the end of each scheme year i.e. 31 March.
Employee contribution is the CRB section will be 6.5% (1% less than the final salary section).
From 1 October, the vast majority of staff will continue to remain in a final salary scheme.
Only new entrants will be in a Career Re-valued Benefits section (CRB) – although the numbers here will increase over the years.
For staff now aged 55 or over, apart from the new contribution rate, and the introduction of flexible retirement, there are few changes whilst in employment.
For all others, the normal pension age increases, and contributions increase. They retain a final salary pension, and may be able to access flexible retirement.
I H Black, Director of Human Resources
29 September 2011.
First published: 30 September 2011