Consultation on University Superannuation Scheme

negotiating strategy

Pensions OfficerBristol LA

Changes in October 2011

• Existing USS members at 1 October 2011:– Increase in Normal Pension Age to 65 (except if age > 55 on 1/10/11)– With future increases linked to State Pension Age– Contribution rate up from 6.35% to 7.5%– Inflation cap for future accrual of pensions in payment/deferred

• New members and re-joiners after > 30 months:– Inferior CRB (CARE) pension (de-risked, cheaper for employers)– Contribution rate 6.5%

• All USS members– Cost sharing 65:35 if contribution rate forced up in future Flexible retirement scheme – optional part-retired from age > 55– Loss of redundancy protection (ERFC) for those age > 55

Note: Employers contribution left at 16%, probable aspiration to reduce.

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Dispute and negotiating history

• October 2011 – changes imposed• February 2012 – dispute suspended

– Negotiations to focus on comparability with other public sector schemes (especially Teacher’s Pension Scheme – TPS – in pre-92)

– Redundancy protection (12 month extension and further joint review)

• June 2012 – Congress votes return to work-to-contract• July 2012 – Redundancy protection to Oct 2014 ‘banked’• September 2012 – Special Conference votes to re-suspend

action and resume talks

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Negotiating environment (early 2012)

• 92% funded (2011 triennial)• Recovery plan

• Employers continue to pay 16% contribution for 6 years:3.4% above what is needed to meet cost of accruals

• Then 4 years at 2% above estimated cost of accruals at that point• Estimated return on investments adjusted up by 0.51% to 6.61%

• Government finalising proposals for public sector pensions• TPS and other settlements less draconian than that imposed on USS.

Employer rate (16%)

Estimated employer rate required to fund accruing liabilities (post CRB)

BUFFER

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Negotiating environment (now)

• 81% funded (77% when action was re-suspended in Sept)• ‘Unintended’ consequences of stricter regulation and QE *• TPS changes ~final, actuarial work done – clearly better benefit!• Pressure on employers: sector anomaly, recruitment & retention• So not ‘dire’, but smaller buffer and employers are scared of

‘deficit’ and being asked for higher contributions at 2014 triennial

Employer rate (16%)

* Notional liabilities increased, but the scheme’s actual assets have improved and the cost of providing the pension promises has not changed. The 23% ‘deficit’ is the result of stricter methods in how pensions have to be accounted for - and if gilts where averaged over 20 years there would be no problem or underfunding.

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Consultation - what are your priorities?

1) Improvements to USS CRB section (already 239 in Bristol ~ 10%):• Broad comparability with TPS including

– Better accrual rate– Better revaluation cap– Removal of inflation cap

2) Protection of favourable aspects of USS• Indefinite protection for final salary section• Desirable features of USS vs TPS

– Lump sum– Death in service benefits– Redundancy protection– Lower contribution rates than TPS

3) Are you willing, if necessary, to pay additional contribution rates in order to secure improved benefits?

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Scheme designs

Design Accrual Lump sum Re-valuation rate

Re-valuationcaps*

Cost sharing*

USSpre-2011

Final salary

1/80 3x pension(~1/65)

CPI **(~ 0.8% < RPI)

50:50 > 5-10%100:0 > 10%

Yes65:35

USS CRB(CARE)

CRB 1/80 3x pension(~1/65)

CPI(~ 0.8% < RPI)

50:50 > 5-10%100:0 > 10%

Yes65:35

TPS CRB 1/57 None CPI + 1.6%(~ 0.8% > RPI)

Uncapped None

* Ratios are employer:member ** Revaluation and caps for pensions in payment/deferred only - as CRB

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Lower Upper ContributionRate in 2013-14

Difference from 6.5% ofCRB USS members

Below £14,999 6.4% -0.1%

£15,000 £25,999 7.0% 0.5%

£26,000 £31,999 8.2% 1.7%

£32,000 £39,999 9.4% 2.9%

£40,000 £44,999 9.8% 3.3%

£45,000 £74,999 11.6% 5.1%

£75,000 £99,999 11.7% 5.2%

£100,000 £150,999 12.4% 5.9%

TPS: Post 92 contributions against USS 6.5% for CRB members

Contributions

• Final salary – 7.5% (+ employer 16% = 23.5%)• USS CRB – 6.5% (+ employer 16% = 22.5%)• TPS – 6.4% to 12.4% (“unfunded”)

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a = 20 years b = 30 years

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a = 20 years b = 30 years

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Overall picture

Benefit Cost* Value for money **

Protections

USS final salary 1st 2nd 1st (2.93) Death in Service, Redundancy (>55)

USS CRB 3rd 1st 2nd (2.85) Death in Service, Redundancy (>55)

TPS 2nd 3rd 3rd (2.22)

Design Accrual Lump sum Re-valuation rate

Re-valuationcaps

Cost sharing

USSpre-2011

Final salary

1/80 3x pension(~1/65)

CPI(~ 0.8% < RPI)

50:50 > 5-10%100:0 > 10%

Yes65:35

USS CRB CRB (CARE)

1/80 3x pension(~1/65)

CPI(~ 0.8% < RPI)

50:50 > 5-10%100:0 > 10%

Yes65:35

TPS CRB 1/57 None CPI + 1.6%(~ 0.8% > RPI)

Uncapped None

** Factors-in contributions. Higher means better, on average, value for money (per unit member contribution)

* Cost to member: 1st = cheapest

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What are your priorities?• Improve CRB, make it more comparable to TPS? How? **

– Better accrual rate? – Better revaluation rate? – Removal of inflation cap?

• Preserve favourable aspects of existing USS? Which?– Indefinite protection for the final salary section?– Lump sum? * **– Death in service benefit? *– Extend redundancy protection beyond 2014? * **– Lower contribution rates?

• Are you willing if necessary*** to pay additional contributions in order to secure improved benefits? If so:– By all, for all? (likely in the region of 1%-2%) **– Or just for those who benefit? (CRB pay)– Tiered by salary? (more mildly than TPS?) **

*** First explore capacity of USS to absorb, contemplate this only if objectively justified (TPS is ‘over-paying’)

* Probably the easiest to achieve ** Favoured in Branch Officer Meetings

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