Please find below a series of Q&As issued to support the consultation which ran from 16 March 2015 to 22 May 2015.
What is your question about?
Select a question below to see the answer
- What are the proposed changes?
The JNC has proposed the following changes which, if implemented, would take effect from 1 April 2022 (unless stated otherwise).
- From 1 April 2022, each year members would build up a pension in the USS Retirement Income Builder, the defined benefit section of USS, at a lower rate of 1/85th of salary compared to the current rate of 1/75th of salary, and a separate lump sum of 3/85th rather than 3/75th , of salary up to the Salary Threshold.
- From 1 April 2022, the Salary Threshold would reduce from £59,883.65 to £40,000.
- From 1 April 2023 the Salary Threshold would continue to increase annually in line with official pensions, which are currently increased in line with the Consumer Prices Index (CPI), but subject to a lower maximum increase of 2.5% a year until 31 March 2025 or if earlier, the date of any change concluded by a review of the JNC of the amount of the Salary Threshold.
- Benefits earned in the Retirement Income Builder from 1 April 2022 would continue to have increases applied annually before and after members retire, but subject to a lower maximum of 2.5% a year.
- From 1 April 2022 there will be an improvement of benefits for those who are members of USS for a short period (more than three months but less than two years).
These proposed changes would not affect any benefits you build up before 1 April 2022. They will only affect future benefits earned from that date.
If the changes are implemented, members’ contributions would remain at their current level, introduced from 1 October 2021, of 9.8% of salary. Employers’ contributions would remain at their current level, also introduced from 1 October 2021, of 21.4% of salary.
- What is the USS Joint Negotiating Committee and what is its role?
Under the USS rules, the Joint Negotiating Committee (JNC) is the body responsible for, among other things, deciding how increased contribution requirements should be shared between employers and members, and whether there should be a change to future benefits to deal with the rising costs of the Scheme.
It is made up of five representatives appointed by Universities UK which represents employers, five representatives appointed by the University and College Union which represents members and an independent chairperson.
At each valuation, the Trustee (with actuarial advice) determines the total contribution rate needed to pay to fund the Scheme based on the benefits being offered at that time.
It then gives this information to the JNC, which decides how any change in costs is to be addressed by:
- Increasing or decreasing the member and employer contribution rate and/or
- making changes to the benefits the scheme will provide in future.
- What is the fall-back position and why is it required?
The cost of the benefit structure proposed by the JNC and the commitment from employers to provide additional support to the Scheme have allowed member contribution rates to be introduced from 1 October 2021 of 9.8% of salary instead of 11% (which was the member contribution rate scheduled under the 2018 valuation).
However, the proposed benefit structure is subject to the outcome of this consultation and there is a funding gap. The Trustee could only accept this because: (i) of the benefit changes explained in this FAQs, which would come into effect, if implemented, from 1 April 2022; and (ii) the JNC agreeing to a “fall-back” position that would come into effect if the JNC’s (or other) recommendations on benefit change were not implemented.
Under this fall-back position, increases to contributions would be set in the same proportions that applied under the default cost sharing rule in the Scheme rules in previous valuations, based on there being no change to current benefits. It provides the Trustee with the assurances it needs, consistent with its legal duty to protect accrued benefits.
- How might the change to the Accrual Rate affect my pension savings and what I’ll get in the long-term if the proposals are implemented?
Your Retirement Income Builder pension will be calculated as 1/85 of salary (up to the Salary Threshold) for each year of service from 1 April 2022 onwards, rather than 1/75 of salary. This would reduce the pension you build up in the Retirement Income Builder each year.
For example, if your salary is £40,000, from 1 April 2022 you’d be building 1/85 of that salary as Retirement Income Builder pension which works out as £471 each year. This would then be increased annually both before and after you retire.
On the same salary, with the current 1/75 accrual rate (and assuming a Salary Threshold of £40,000, which is lower than the current Salary Threshold), you’d build up a Retirement Income Builder pension of £533 each year which would then be increased both before and after you retire.
You will also build up a separate cash lump sum of 3/85 of your salary each year, up to the Salary Threshold. On a salary of £40,000, you’d build up £1,412 lump sum each year. On the current accrual rate of 3/75, the amount would be £1,600 each year.
- How does the change to the Salary Threshold affect me if the proposals are implemented?
Members’ benefits in the Retirement Income Builder will be built up based on a maximum salary of £40,000 each year – this is lower than the current figure of £59,883.65.
If you earn over £40,000 you will build up savings in the Investment Builder, the defined contribution part of USS, in addition to the pension and lump sum you are building up in the Retirement Income Builder.
This means that if after 1 April 2022 your salary is higher than £40,000 then each year you will build up a lower Retirement Income Builder pension and lump sum than at present. However, contributions from you and your employer on salary over £40,000 will be used to build up your savings in the Investment Builder.
- How much will I have to pay if the proposals are implemented?
If the JNC proposals are implemented on the 1st April 2022, then you will contribute the same as you do now, 9.8% of your salary.
However, in the absence of the JNC’s proposed changes, or other changes to benefits and/or covenant support provided by employers which achieves the same cost savings, and subject to the outcome of future valuations, member contribution rates will increase as follows:
Fall-back contributions if no changes are implemented
Members (% of salary) From 1 April 2022 to 30 September 2022 11.0% From 1 October 2022 to 31 March 2023 12.9% From 1 April 2023 to 30 September 2023 13.9% From 1 October 2023 to 31 March 2024 15.0% From 1 April 2024 to 30 September 2024 16.0% From 1 October 2024 to 31 March 2025 17.1% From 1 April 2025 to 30 September 2025 18.1% From 1 October 2025 onwards 18.8%
- What would employers pay under the proposals, if they are implemented?
If the JNC proposals are implemented on the 1st April 2022 the employer contribution would remain at the current level of 21.4% of your salary.
However, in the absence of the JNC’s proposed changes, or other changes to benefits and/or covenant support provided by employers which achieves the same cost savings, and subject to the outcome of future valuations, employer contribution rates will increase as follows:
Fall-back contributions if no changes are implemented
Employers (% of salary) From 1 April 2022 to 30 September 2022 23.7% From 1 October 2022 to 31 March 2023 27.1% From 1 April 2023 to 30 September 2023 29.1% From 1 October 2023 to 31 March 2024 31.0% From 1 April 2024 to 30 September 2024 33.0% From 1 October 2024 to 31 March 2025 34.9% From 1 April 2025 to 30 September 2025 36.9% From 1 October 2025 onwards 38.2%