The Proposals in Detail

At its meeting on 31 August 2021, the JNC recommended a package of benefit and contribution rate changes in order to address the increased costs of the scheme. If implemented, most of these will take effect from 1 April 2022.

The changes proposed by the JNC and the up-front commitment from employers to provide additional support to the scheme mean that a rise in member contributions from 9.6% to 11% of salary, due to happen on 1 October 2021, has now been replaced, with a smaller rise on this date to 9.8% of salary instead. The employer contribution rate from 1 October 2021 has increased from 21.1% to 21.4%. These smaller increases reflect the fact that the JNC recommended benefit structure would cost less than the current benefit structure.

However, if the benefit changes recommended by the JNC (or alternative benefit changes which achieve the same cost savings) are not implemented, contribution rates would need to increase significantly to cover the cost of the current benefit structure. To deal with this scenario there is a proposed fall-back position which would see contribution rates increase every six months from 1 April 2022.

Further information regarding the fall-back position and the associated contribution rates that would apply in that scenario are set out below. You are also being consulted on these.

Please note that if implemented none of these proposed changes would affect any benefits you build up before 1 April 2022 – they would affect future benefits earned from that date only.

You can find out more about the potential impact of the proposals on your benefits by using the modeller.

The Salary Threshold sets a maximum level on the amount of salary which is used to calculate benefits in the USS Retirement Income Builder, the defined benefit part of USS. The current Salary Threshold is £59,883.65 – the proposal is to reduce the Salary Threshold to £40,000 from 1 April 2022 onwards.

This would mean that if on or after 1 April 2022 your salary is higher than £40,000, each year you would build up a lower USS Retirement Income Builder pension and lump sum than with the current Salary Threshold.

If the change to Salary Threshold is implemented then as is the case now, your employer would contribute an amount worth 12% of any salary above the Salary Threshold into the USS Investment Builder, the defined contribution part of USS. Your contributions would be 8% of salary above the Salary Threshold and would be allocated to the Investment Builder as now. The proposed change to the Salary Threshold means that if you currently earn more than the Salary Threshold, you will save more in your Investment Builder pot than previously.

More about the Salary Threshold

The Salary Threshold currently increases each year in line with official pensions, but the annual increase is capped as follows:

Increase in official pensions Increase applied by USS
Less than 5% The same increase
5% 5%
More than 5% but less than 15% 5% plus one-half of the amount above 5%
15% or more 10%

It is proposed that the Salary Threshold would continue to rise in line with official pensions, which are currently linked to inflation as measured by the Consumer Prices Index (CPI), but with a lower annual cap of 2.5%.

So, in future, if official pensions give increases higher than 2.5% in any year (because CPI is higher than that), the Salary Threshold would only increase by 2.5% in that year. If the proposal is implemented the 2.5% cap would be in place until 31 March 2025 unless the JNC concluded a review to change the cap before then.

More about the Salary Threshold

Currently, for each year (or part of a year) that you are in USS, you build up a pension of 1/75th of your salary, up to the Salary Threshold. You also built up a separate lump sum of 3/75ths of your salary, up to the Salary Threshold.

Reducing this accrual rate will mean that, for the same salary, the amount you build up in the Retirement Income Builder each year would be reduced from 1 April 2022.

More about the accrual rate

Currently, in the time between being earned and being paid, your USS Retirement Income Builder pension and cash lump sum is increased in line with official pensions, with the annual increase capped as follows:

Increase in official pensions Increase applied by USS
Less than 5% The same increase
5% 5%
More than 5% but less than 15% 5% plus one-half of the amount above 5%
15% or more 10%

The lower annual cap proposed means that benefits built up after 31 March 2022 would increase at a lower rate than they do at present, in any year where official pensions are increased by more than 2.5%.

More about revaluation of benefits

Currently, when USS Retirement Income Builder pensions are in payment, after a member retires, they are increased in line with official pensions, but the annual increase is capped as follows:

Increase in official pensions Increase applied by USS
Less than 5% The same increase
5% 5%
More than 5% but less than 15% 5% plus one-half of the amount above 5%
15% or more 10%

The lower cap proposed means that pensions built up after 31 March 2022 would increase at a lower rate than they currently do, in any year where official pensions are increased by more than 2.5%.

More about revaluation of benefits

Members who leave the scheme with anything between three months and less than two years' membership would be provided with deferred benefits in the USS Retirement Income Builder rather than a deferred benefit based on their contributions as is currently the case. On average, this would provide a larger deferred benefit for the relevant members.

Note that under legislation, there is not a legal requirement to consult with affected employees and their representatives regarding this particular proposal. You can find out more about early leaver benefits in USS below.

More about early leaver benefits

The above package of proposed benefit changes, when taken alongside the substantial support package provided by employers (a long term commitment to the scheme and additional protection as a creditor) which greatly increased the security of the benefits already built up, in the view of the Trustee, reduced the total future costs of the scheme (to 31.2% of salaries).

As a result, if the JNC's recommended package of proposals is implemented, you will continue to pay 9.8% of your salary to the scheme from 1 April 2022, and your employer will continue to pay 21.4%.

If your salary exceeds the Salary Threshold in any year, then you will pay 9.8% of your total salary to USS (as now) with 8% of your salary above the Salary Threshold going towards building up savings in the USS Investment Builder. Your employer would also pay 12% of your salary in excess of the Salary Threshold to the USS Investment Builder.

You can find out more about contributions to USS below.

More about USS contributions

Please note that if implemented none of these proposed changes would affect any benefits you build up before 1 April 2022 – they would affect future benefits earned from that date only.

The changes proposed by the JNC above have allowed the Trustee to replace the 11% member contribution rate scheduled for 1 October 2021 with a new rate of 9.8%. The Trustee has been able to do this as the cost of the benefit structure proposed by the JNC is lower than that of the current level of benefits and because of the additional up-front commitments from employers to provide support to the scheme. But this is based on a proposed fall-back position in place in case the changes don't happen. In this event the employers' commitments of support to the scheme are different, and the contribution requirements reflect this, as well as the more expensive benefits.

In the event that no changes are made to the current structure of the scheme, then both member and employer contributions would need to increase every six months from 1 April 2022 onwards to ensure that the scheme is adequately funded.

This fall-back position would be for contributions to be paid in the same proportions (35% members/65% employers) that would apply under the default cost-sharing rule introduced by the JNC in previous valuations and based upon there being no change to current benefits. This provides the Trustee with the assurances it needs, consistent with its primary legal duty, as to the security of members' accrued benefits.

This fall-back position would apply from 1 April 2022 if the deed of amendment required to implement agreed changes (either these proposed changes or others agreed following this consultation which include contributions which support the cost of the alternative proposed benefit structure) is not executed by 28 February 2022.

If the 28 February 2022 deadline is missed there would not be time to complete the necessary legal steps and implement those changes from 1 April 2022. Note, any agreed changes (including revised contribution rates) could be implemented at a later date but the time required to implement them would depend on their scale and nature.

The fall-back position would see member and employer contribution rates increase in steps every six months from 1 April 2022 until 1 October 2025. These contribution rates will put pressure on members and employers in terms of affordability and it is for the JNC to address this should we end up in this position. However, in the absence of further changes to benefits and/or covenant support provided by employers and subject to the outcome of future valuations, contribution rates will increase as in the table below . The contribution rates under the fall-back position are likely to be challenging for employers and members. Accordingly, the increases would be phased in over four years. This would also give the JNC the opportunity to decide on whether to recommend changes to benefits in future before contributions get considerably higher.

Members (% of salary) Employers (% of salary)
From 1 April 2022 to 30 September 2022: 11.0% 23.7%
From 1 October 2022 to 31 March 2023: 12.9% 27.1%
From 1 April 2023 to 30 September 2023: 13.9% 29.1%
From 1 October 2023 to 31 March 2024: 15.0% 31.0%
From 1 April 2024 to 30 September 2024: 16.0% 33.0%
From 1 October 2024 to 31 March 2025: 17.1% 34.9%
From 1 April 2025 to 30 September 2025: 18.1% 36.9%
From 1 October 2025 onwards: 18.8% 38.2%

You can find out more about the potential impact of the increase in contributions to your pay by using the modeller.

There would be no other changes to members' benefits. In particular:

  • The changes will not affect any benefits built up before 1 April 2022.
  • The changes to the Salary Threshold and its revaluation, to the accrual rate, or to the cap on increases to pensions before or after retirement, would not affect any benefits built up before 1 April 2022.
  • Members' death in service benefits will continue to be calculated using the same principles as at present, which may include a lump sum of at least three times salary and spouse/civil partner/dependants' pensions.
  • Ill health retirement benefits will also continue to be calculated on the same basis as at present (although please note their calculation is based upon the benefits payable at the date of retirement), which could provide a lump sum and pension where a member becomes ill and has to give up work.
  • No changes are being made to the scheme's normal retirement age which is currently age 66. (This is aligned to State Pension age, so will increase in the future as the State Pension age increases).
  • The Investment Builder will continue to be available for members who want to make additional contributions or transfer savings into USS.

All USS benefits already built up by members are secure and protected by law and the scheme rules.