uss consultation presentation - university of kent

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© 2015 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Universities Superannuation Scheme Employer Consultation

University of Kent

A presentation by Jackie Holmes – Towers Watson

April 2015

© 2015 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com

Important

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This presentation is to provide you with general information to help you

better understand the proposed changes

The proposals are only that – nothing has been decided

Your employer wants to hear your views

Neither your employer nor Towers Watson can provide you with

specific financial advice

As and when the proposed changes are confirmed, you may wish to

speak to a local impartial Financial Adviser (IFA) – further information

will be provided later in the presentation


What we will cover today

Background to the proposed changes

Brief reminder of the current sections of the USS

Brief overview of the proposed changes

Considerations for a defined contribution (DC) section

What the proposed changes might mean for you

Financial advice

Further information and proposed timings of next steps

Questions

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Context – what are other employers/schemes doing?

Towers Watson FTSE 350 survey (2015) - 66% of FTSE 250 employers

now offer a DC pension arrangement to all their employees

Survey indicated that the average total pension contribution percentage

for FTSE 250 employers - core and matching contributions – was 14.2%

Teachers’ Pension Scheme - career average basis from April 2015

(if more than 13.5 years away from NPA on 1 April 2012)

Member pension contributions salary-related and range from 6.4% to 12.4%

Local Government Pension Scheme has been providing benefits on a career average basis since April 2014.

Member pension contributions salary-related and range from 5.5% to 12.5%

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One in four FTSE 350 employers offer a

maximum employer contribution of 10%-11%


USS – Why are changes being proposed?

31 March 2011 valuation - USS liabilities exceeded assets by £2.9 bn

June 2013 - deficit had increased to £7.9 bn (£11.5 bn in March 2013)

March 2014 valuation indicative results – deficit £13 bn

Global economic challenges persist/life expectancy continues to improve

Trustees concerned deficit will grow further

Recovery plan to be submitted to the Pensions Regulator by July 2015

Propose to reduce the investment risk - will reduce returns and

potentially increase deficit significantly

Employee and employer pension contributions would have to rise to an

unacceptable level

As a result the Trustees prompted a review of USS benefits

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What are the proposed changes?

FS section and existing CRB section will close for future service from 1 April 2016

Existing and new members join the new CRB section for future service

based on an accrual rate of 1/75 of actual Pensionable Salary

Accrued Final Salary and CRB benefits retained and revalued each year

CRB section Salary Threshold initially £55,000 pa

The member contribution rate will be 8.0% (currently 7.5% for FS, 6.5% for CRB)

Members can pay additional (employer matched) contributions of up to 1%

to a new DC Section

No CRB on Pensionable Salary above the Salary Threshold. Instead employer

contributions of 12% of Pensionable Salary in excess of the Salary Threshold will

be paid to the new DC section

Death in Service and Ill Health benefits will operate in the same way as

current CRB benefits

Employer contribution increasing from 16% to 18%

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Final Salary section - overview

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• Benefits are based on your Final Pensionable Salary when you

retire/leave the section, which is calculated as your: Highest revalued annual salary during the last three years or

Your highest revalued salary averaged across any three

consecutive years over the last thirteen years

• Member contribution: 7.5% of Pensionable Salary

Pension: Final

Pensionable Salary

x 1/80 x pensionable

service

+

*subject to any Lifetime Allowance restriction

Tax Free Cash 3 x pension*

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Current CRB section – an overview

Pension each year:

Pensionable Salary x 1/80

(Revalued to retirement)

+


=

Tax Free Cash 3 x pension*


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CRB

Year 3

Inflation

CRB

Year 1

Year 3

CRB

Year 2

Inflation

Year 2

How the CRB works

Year 1

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Proposed new Career Revalued Benefits (CRB) section

Pension each year:

Pensionable Salary x 1/75

(Revalued to retirement)

+

• Benefits are calculated every year based on your Pensionable

Salary (basic salary), capped at £55,000 (salary threshold)#

• Your pension benefits calculated each year are then increased for

inflation (CPI) up to retirement

• Your pension cannot decrease during periods of negative inflation

and the maximum increase is capped


Tax Free Cash = 3 x pension*


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#Members in part-time employment will receive benefits based on actual salary up to the

threshold, not full-time equivalent

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How might I increase my pension benefits? A new Defined Contribution (DC) section is being introduced

You will be able to increase your pension benefits by paying additional

pension contributions that will be matched by your employer:

These are contributions in excess of the core member contribution of

8.0% of Pensionable Salary for the new CRB section

Additional (unmatched) contributions can be paid by members, subject

to the restrictions of the Annual Allowance (£40,000 for 2015/16)

Employee

(% of Pensionable Salary)

Employer matching

(% of Pensionable Salary)

1.0% 1.0%

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Additional Voluntary Contributions Money Purchase AVCs

Managed by Prudential on a money purchase basis

Fund at retirement depends on AVCs paid, investment return and charges

Added Years/Revalued Benefits AVCs

Buy additional pension and lump sum in USS

Existing Added Years/Revalued Benefits AVCs will be calculated at the

Implementation date and then increased in line with official pensions, subject

to the cap

For members paying regular instalment Added Years/Revalued Benefits AVCs

immediately prior to implementation date, it is intended that they will have a

one-off option to continue paying regular AVCs to complete the purchase of

additional benefits

AVCs post implementation date

There will be a new arrangement put in place, which will replace the existing

arrangements – no details of provider or funds to be offered available as yet

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Transfers-in Ending of final salary link will apply to transferred-in service

Transfers in based on pensionable salary immediately prior to

implementation date – then increases in line with official pensions

Withdrawal from Public Sector Transfer Club

Transitional arrangement

For those who joined after 1 April 2014 but before 1 April 2016

Transfer in from scheme in Public Sector Transfer club on current terms -

benefits under USS based on pensionable salary at implementation date

Otherwise, no new transfers to final salary section after

implementation date

Transfers accepted by USS prior to implementation date will

be completed

No new transfers to CRB section after implementation date

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FS

CRB

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Proposals – Salary above the Salary Threshold

Members will not earn any Career Revalued Benefits on Pensionable

Salary above the Salary Threshold of £55,000 pa

Instead - employer contributions to the DC Section on Pensionable

Salary in excess of the Salary Threshold:

Employee

(% of Pensionable Salary, above Salary

Threshold)

Employer

(% of Pensionable Salary, above

Salary Threshold)

8.0% 12%

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How a DC Section works

£ Family Benefits

Tax Free Cash

Annual Income

+ +

Money goes in

Contributions paid by you and the employer are invested in the DC Section

The bigger the fund, the better the benefits

Fund

performance

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Provider/fund choices yet to be announced

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Defined Contribution (DC) Investment choices

Your investment choices should reflect your personal circumstances,

including attitude to investment risk and length of time to retirement

It is likely there will be a choice of funds allowing you to invest in a

range of asset classes

There will be a default fund for those who are unwilling/unable to make

a choice

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Options for drawing defined contribution funds

DC Pension Account

Up to 25% tax

free lump sum

Full cash

withdrawal at

marginal tax rate

Annuity Drawdown

Impaired/

Enhanced

Standard

Cash Secured Income Variable Income

Transfer to

another DC

product

Don’ forgot about any Prudential AVC funds

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Available at any time

from age 55 onwards

£

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‘New look’ pension income from DC fund

Pension options from DC funds

Traditional annuity income

Level annuity

Increasing annuity

State

Pension

Age

Lower income needs

Long

term

care

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Death in service survivor benefits and ill health benefits will operate in

the same way as for current CRB structure of benefits

Will reflect the improved 1/75th pension accrual rate and be based on

total salary (ignoring the Salary Threshold)

DC fund arising from ‘standard’ employer and employee contributions

and 1% employer matching contribution would be absorbed into USS

and used towards the cost of providing death in service survivor or ill-

health benefits

DC fund arising from additional contributions and transfers-in payable

in addition to survivor or ill-health benefits

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Death in service and ill-health benefits

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Figures in ‘today’s terms’

Modeller assumes:

Fixed inflation of 2.5%

Retirement Age 65 (range 55 to 75)

Future pensionable salary increases of 2.5% per year (range 0% to

7.0%, ability to input future promotional increases up to 10%)

No extra contributions (range 0% to 15.0%)

DC investment returns of 5% per year (range 0% to 7.5%)

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USS Benefit Modeller

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FS member example - Pensionable salary £30,000 (1 April 2016)

CRB contribution (8.0%): £200.00 gross a month

Additional employee contribution (1.0%): £25.00 gross a month

Total member contribution £225.00 a month

Basic rate tax relief (20%) on contribution is £45.00 a month

Net cost: £180.00 a month

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Member aged 46

Future salary increases 2.5% pa

Investment return 5.0% pa

21 years pensionable service

Retirement age 65

Additional contribution 1%

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FS member - salary £30,000 no additional contribution

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USS Benefit Modeller FS member Pensionable Salary £30,000 (1 April 2016) 1% additional contribution

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FS member example – Pensionable salary £70,000 (1 April 2016)

CRB contribution (8.0%) of £55,000 = £367 gross a month

Additional DC contribution (1%) of full salary = £58 gross a month

DC contribution (8.0%) of salary over threshold = £100 gross a month

Total contribution of £525 gross a month

Higher rate tax relief (40%) on contribution is £210 a month

Net cost: £315 a month

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Member aged 46



21 years pensionable service

Retirement age 65


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FS member example - salary £70,000

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USS Benefit Modeller FS member Pensionable Salary £70,000 (1 April 2016) 1% additional contribution

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CRB member examples – assumptions

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Member aged 46



3 years’ pensionable service

Retirement age 65


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USS Benefit Modeller CRB member Pensionable Salary £30,000 (1 April 2016)

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USS Benefit Modeller CRB member Pensionable Salary £70,000 (1 April 2016)

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Further information

USS Consultation website: Consultation meetings/

staff representatives:

http://www.uss.co.uk/SchemeGuide/CareerRevaluedBenefitssection

Consultation glossary: https://www.ussconsultation.co.uk/members/glossary

USS Career Revalued Benefits section (current) guide:

Have your say!



https://www.ussconsultation.co.uk/members/glossary



towerswatson.com © 2015 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Where do I go if I need financial advice?

Vital to get an adviser you can trust

Personal recommendation best

Impartiality essential

Transparency of costs

Area of expertise – knowledge of USS

For a better understanding how an adviser might help:

https://www.moneyadviceservice.org.uk/en/articles/do-you-need-a-financial-

adviser

http://www.uss.co.uk/SchemeGuide/FinalSalaryBenefitssection/maximisingyou

rpension/financialadvice/Pages/default.aspx

If you are ready to search for an adviser, visit www.findanadviser.org

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https://www.moneyadviceservice.org.uk/en/articles/do-you-need-a-financial-adviser













http://www.uss.co.uk/SchemeGuide/FinalSalaryBenefitssection/maximisingyourpension/financialadvice/Pages/default.aspx



http://www.findanadviser.org/


Timing of next steps

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22 May 2015

Planned

Consultation end

date

16 March 2015 1 April 2016

Trustee considers

consultation responses

and refers any suggested

modifications to the JNC

Proposed

implementation of

changes (earliest)

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Consultation start date

June/July 2015

Autumn 2015

Any agreed

changes will be

communicated

May 2015

Consultation meeting

University of Kent


Any questions?

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The University Pensions Department are also happy for you to refer to them

any personal questions relating to pensions:

Tarnia Craswell: [email protected] 01227 823601

Alan Gazzard: [email protected] 01227 824767

mailto:[email protected] 01227 823601

mailto:[email protected]

mailto:[email protected]


Limitation of reliance

This presentation is provided to employees of University of Kent who are members of the Universities

Superannuation Scheme solely for their use. It may not be suitable for use in any other context and we

accept no responsibility for any such use whether by the members or by any other party. It has been

prepared for general purposes only and does not purport to be and is not a substitute for specific

professional advice to individual members. As such it should not be relied upon by individual members

for individual investment or other financial decisions and those persons should take their own

professional advice on such investments or financial decisions.

The contents are based on information available to Towers Watson at the date of the presentation,

and takes no account of subsequent developments after that date. This presentation may not be

provided or its contents disclosed by any person to any other party without Towers Watson’s prior

written permission. In the absence of our express written permission to the contrary, Towers Watson

accepts no responsibility for any consequences arising from any third party relying on the contents of

this presentation or the opinions expressed therein.

Taxation

Towers Watson Limited is a firm of Actuaries and Employee Benefits Consultants. Where the advice

we provide has taxation implications, we rely on our clients obtaining definitive advice on such issues

from their accountants and/or legal advisers.

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uss consultation presentation - university of kent

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