Changes - Q&As

1. What is the implementation date of the changes?
   The changes take effect from 1 April 2014.
   
   
2. Why are changes to the scheme needed?
   Like many final salary schemes, UGPS is in deficit. This has an impact on the scheme's ability to meet future pension payments so the University has had to look at how UGPS can be strengthened going forward.
   
   
3. What is the current value of the scheme?
   The scheme assets are currently valued at £250 million. The deficit is potentially £80 million.
   
   
4. Will the University fund the deficit?
   The University currently pays contributions of 19.5% of members' salaries and will be expected to fund the deficit once the extent of it is determined by the next actuarial valuation.
   
   
5. If the University is funding the deficit why are members' contributions being increased?
   The University is funding the deficit. Your increased contributions are merely contributing to the future sustainability of the scheme, particularly the additional cost of people living longer.
   
   
6. The University has taken contribution holidays in the past - why was this?
   Contribution holidays are required by legislation when a scheme is potentially overfunded which UGPS has been in the past. Whilst employer contributions were not paid during the contribution holiday period, the scheme benefits were also increased during this time.
   
   
7. I have heard that my accrued rights must be protected and cannot be changed. Is this right?
   Yes, by law any changes to a pension scheme cannot adversely affect a member's accrued rights without the member's written consent. In addition the rules of UGPS contain provisions which prevent adverse changes being made to accrued rights.
   
   
8. Are final salary benefits being retained for existing members?
   Yes,  final salary benefits are being retained for existing UGPS members. New joiners from 1 April 2014 will have defined contribution benefits.
   
   
9. How will the deficit be addressed by closing the scheme to new members?
   Closing the scheme to new members won't affect the deficit as such but means that outgoings from the scheme will gradually reduce the debt of the scheme until such time as the last pension is paid out.
   
   
10. I'm in my mid 30s and have just joined the scheme. As one of the last batch of new joiners, is the potential risk for me greater?
    You will receive your pension on the basis of benefits accrued, subject to changes going forward, the same as everyone else.
    
    
11. Is there any possibility that pensions won't be paid?
    There is a guarantee that accrued pensions will be paid. The University is required to underwrite any liabilties unless something catastrophic was to occur. There is a Pension Protection Fund in place that would be applied in such an event and whilst it does not guarantee the total pensions, it would fund 80 - 90% of the pension values.
    
    
12. How will the increase in normal pension age to 65 affect members?
    The scheme already has a normal pension age of 65 but in practice all members were able to draw an unreduced pension from age 60. Pension accrued in respect of service up to 1 April 2014 will still be paid without reduction when taken from age 60. Pension accrued in respect of service from 1 April 2014 will be reduced if taken before age 65.
    
    
13. What does reduced pension mean?
    An actuarial reduction would be applied to your pension in respect of service from 1 April 2014 take because it is being paid earlier than expected (before age 65).
    
    
14. Will the actuarial reductions be worse after 1 April 2014?
    Actuarial reductions are determined by the scheme actuary. There are no plans to change the current methodology
    
    
15. Are all members affected by the change in normal pension age?
    Yes, although transitional arrangements exist for those nearing retirement. If you are aged over 55 at 1 April 2014 you retain the ability to take an unreduced pension from age 60.
    
    
16. If I am approaching age 60 and wish to retire, what are the implications for my pension?
    Your benefits are protected by the transitional arrangements to protect the benefits of those who are nearing retirement. The transitional arrangements apply to those aged over 55 at 1 April 2014.
    
    
17. If I am over age 60, can I access my pension and continue working?
    No, in order to access your pension you need to have stopped working for the University.
    
    
18. What happens if I want to work beyond age 65 - can I stay in the scheme?
    Yes, you can remain in the scheme if working beyond age 65.
    
    
19. Will there be a penalty for those retiring early when they reach age 55 or soon after?
    There will be a penalty in such a situation. An actuarial reduction would be applied to the pension because it is being paid earlier than expected. An example of a pension reduced for early retirement is given in the question below.
    
    
20. Could you give an example of a pension reduced for early retirement?
    Employee aged 50 at 31 March 2014 wants to retire age 60 at 31 March 2024
    Employee has 30 years service and a salary of £20K
    
    Service for period 1 April 1994 to 31 March 2014 (20 years) would be reckonable in full
    Service for period 1 April 2014 to 31 March 2014 (10 years) would be reduced because it is being paid five years earlier than the normal pension age of 65 and become worth 8 years
    
    or
    
    Pension for period 1 April 1994 to 31 March 2014 (20 years) would be payable in full
    20 years x £20K / 80 = £5,000 p.a.
    Pension for period 1 April 2014 to 31 March 2024 (10 years) would be reduced because it is being paid five years earlier than normal pension age of 65
    10 years x £20K / 80 = £2,500 p.a. less actuarial reduction of £500 p.a. = £2,000 p.a.
    
    Total pension payable = £7,000 p.a.
    
    
21. Will the option to take a larger lump sum and a smaller pension continue in future?
    Yes, you will still be able to take a larger lump sum and a smaller pension if you wish.
    
    
22. What impact will changes in the State pension age have on UGPS?
    You may already know about Government plans to increase State pension age in the future. The proposed change means that the normal pension age under UGPS will change in line with future changes to State pension age.
    
    
23. Will the annual pension forecasts which members have already received still be correct?
    The annual forecasts are based on service and the set formula for calculating benefits. This is not changing so the annual forecasts are still correct. 
    
    
24. What about AVCs?
    There are no plans for change. You can pay AVCs to supplement your pension subject to certain limits.
    
    
25. Will I still be able to transfer previous pension scheme benefits into UGPS?
    Yes, transfers-in will still be permitted.
    
    
26. What if I can't afford the increased contribution rate of 7.5%?
    Remember that you receive tax relief on the contributions you make and scheme members pay a reduced rate of NI contributions so the net cost to you will be lower. However if you wish you can choose to join the new defined contribution scheme (NEST) instead.
    
    
27. What is the position of USS in terms of performance - is it better than UGPS?
    USS has a deficit too and despite recent changes, including an increase in the contribution rate and the introduction of a career revalued benefits scheme for new entrants, this is currently under review and there may be further changes made following the next actuarial valuation.
    
    
28. Can members opt to change schemes?
    You can opt to join the new DC arrangement (NEST), however, if you are considering this you should take independent pensions advice.
    
    
29. Were alternative proposals considered such as transferring everyone into USS or implementing a career average scheme?
    The University considered these and they were less beneficial than the proposed changes.