The following Q&As include answers to the most frequently asked questions about the proposed scheme changes and the consultation. They will be updated throughout the process, so please check back if you want more information.
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- How would my additional contributions be affected by the changes proposed in this consultation?
There would be no change to the treatment of any additional contributions you make, including your element of the match, if you have it – these would continue to be credited to your Investment Builder fund in full, as would any further additional contributions you may choose to make in future.
- How will the proposed contribution increases affect me?
The proposals mean that you would pay more into the scheme from 1 April 2019, with your contribution rising from 8% of salary to 8.8%. Further increases will take effect on 1 October 2019 (10.4%) and 1 April 2020 (11.7%). How much more you will contribute depends on what you earn. To see an estimate of the impact on your take-home pay go to the ‘Potential £ impact’ page
- When would the proposed increased contributions be implemented?
The earliest that the first phase of the proposed increases would be implemented is 1 April 2019.
- What happens to my member contribution under the match, if the employer contribution stops?
It is proposed that, in accordance with scheme rules, the employer’s 1% match would be discontinued from 1 April 2019. If it is, members that currently take the match would continue to make their 1% additional contributions to the USS Investment Builder, but employers would no longer match those contributions from 1 April 2019.
Any members that wish to stop making the 1% additional ‘match’ contribution will be able to do so using My USS.
- Why do contributions need to go up?
The USS trustee’s 2017 valuation has estimated that the cost of providing the current package of benefits is now higher than was previously calculated in 2014. In addition, the £7.5 billion deficit in respect of benefits already built up in the USS Retirement Income Builder also has to be addressed. Together, these mean an additional £900 million a year in contributions will be required from members and employers, due to the higher cost of investing and continued low expectations of returns in an unstable market.
You can read more about the valuation and its conclusions at www.uss.co.uk/how-uss-is-run/valuation.
The Joint Negotiating Committee (JNC) proposed some changes to the scheme in January 2018 to address this. However, after further discussion between UCU and UUK, the JNC withdrew the benefit changes it proposed. UCU and UUK separately created the Joint Expert Panel (JEP) to assess the underlying assumptions on which the USS valuation is based and agree key principles to underpin a joint future approach.
The JNC may propose future benefit changes, having reviewed the JEP’s findings. However, it can take around 12 months for a JNC decision to be implemented, potentially delaying action to address the scheme’s funding position until winter 2019/20.
In addition, the USS trustee must meet its statutory requirements to complete the valuation, for which the legal deadline was 30 June 2018. The Pensions Regulator has informed the trustee that it expects the completion of the valuation to be progressed in parallel with the work of the JEP. By law, the trustee must address both the costs of offering the same level of defined benefits in the future and reducing the deficit, resulting in the default cost sharing rules taking effect from 1 April 2019.
- Why can’t employers make up any increase that’s needed, rather than taking more money from members?
The cost sharing rules, introduced via the JNC, determine the split of the increases between employers and members.
- If 8% of my salary above the threshold is paid to the USS Investment Builder, what would happen to the balance of my contributions after 1 April 2019?
The excess, above 8%, would go towards supporting the benefits provided by the USS Retirement Income Builder section of the scheme.
Any additional contributions paid by individual members, will continue to be saved in their USS Investment Builder funds.
- How have you worked out the pay spine on the Potential £ impact page and how pay will increase over time?
The pay spine has been provided by UCEA (Universities & Colleges Employers Association), and relates to the 2018/19 HE sector pay award. The new pay spine applies from 1 August 2018, however the implementation date of the 2018/19 pay award may vary between institutions depending on payroll cut off dates and systems capabilities. It is also noted that not all USS participating employers use this pay spine. The estimated impacts on take-home pay shown do not allow for salary increases (or changes in tax or National Insurance bands and rates). Only the contribution rates are altered.
- I’m not a member of USS, but my consultation letter says I need a member number to leave my response. How can I respond?
All employees who are eligible to join USS can respond to the consultation, and all feedback received will be read and considered. Unfortunately, due to an error in the production of the letter for such members, you may have received the wrong instructions. If you wish to leave feedback, please click ‘register’ as a new/prospective member on the homepage and follow the instructions. If you wish to see the version of the letter that you should have received, go to the Documents page.
- What would employers pay, under the proposals?
The employer contribution would rise from 18% to 19.5% on 1 April 2019, with further increases on 1 October 2019 (22.5%) and 1 April 2020 (24.9%).
- Why are the employers consulting when the proposals are the trustee’s?
The proposals are the result of the trustee administering the scheme in accordance with the rules introduced via the Joint Negotiating Committee (JNC). The legal duty to consult affected employees on certain changes to the scheme (such as these proposals) rests with participating employers.
- We’ve been told the trustee will make us pay more, so what’s the point of this consultation, when members’ views won’t change anything?
Your views are important and your feedback will be read and considered by your employer and the trustee before any final decisions are made. You can comment on any of the proposed changes, including the treatment of the match, the proposed contribution rate increases, and the schedule for the introduction of those increases.
It is a statutory requirement for participating employers to consult with the recognised representatives of affected employees (those actively contributing to USS and those in USS-eligible roles) when certain changes (such as these) are proposed.
- What is a deficit?
A deficit is the difference between the amount of assets held by the scheme, and the amount of money necessary to pay all of the benefits which have been built up by members.
Pension deficits can occur in schemes which provide a guaranteed income to members in retirement – defined benefit schemes. For USS, this applies to benefits that members built up before 1 October 2016 and those built up since then in the USS Retirement Income Builder.
- Why does USS have a deficit?
The costs of providing defined benefit pensions are influenced by things like investment returns, inflation and how long people are living and drawing pensions – so they change over time.
One of the biggest factors influencing costs is expected future investment returns. Changes to the investment outlook since the last valuation in 2014 have contributed to the persistence of USS’s deficit. These include factors such as secure investments like UK government bonds (gilts) offering lower future returns (gilt yields have fallen by 1.6% from already below-inflation levels in 2014 up to the date of the 2017 valuation).
USS is not alone in having a deficit. According to the Pension Protection Fund index, around 63% of UK pension schemes with defined benefit elements are currently in deficit.
Based on maintaining the current level of benefits and contributions for future service, the trustee estimated that there was a funding deficit of just over £7.5bn – which would have meant the scheme was 89% funded, the same ratio as the 2014 valuation.
- Does the deficit mean I won’t get my pension?
No. A deficit does not mean benefits already earned won’t be paid. While the level of benefits offered for future periods of service may be subject to change, defined benefits that members have already built up are protected by law. The trustee takes its responsibility to secure the benefits promised to date very seriously.
- Can I opt out of USS and join another pension scheme but keep my employer’s contributions and the benefits I have as a member of USS?
You can opt out of USS at any time. This would affect your future pension benefits, and you would lose death in service benefits for your beneficiaries and ill health retirement benefits, so you should think carefully before doing so and speak to the pension contact at your workplace or an independent financial adviser for more information. If you choose to opt out of the scheme, under automatic enrolment legislation, you may be re-enrolled every three years and should you wish to, you will have to opt out again, each time you’re re-enrolled.
- Can I join the Teacher’s Pension Scheme or another scheme authorised by my employer?
This depends on your contractual arrangements with your employer, and your employer’s terms of participation in USS. Please contact your institution’s pensions department for further information.
- What is a valuation?
Valuation is a legal requirement of defined benefit occupational pension schemes, and it must take place at least every three years. It’s an assessment of the scheme’s assets (the investments it holds, the contributions it expects from employers and members and the returns it expects to make on its investments) and the liabilities (the amount it needs in order to pay the benefits already earned by members). It also determines the cost of continuing to provide the current benefits in the future.
- What does a valuation involve?
The process begins with an assessment of the financial strength of scheme sponsoring employers. This is the foundation of the valuation, as it shows the trustee how much financial support employers can provide to the scheme and how much investment risk could be taken.
For the 2017 valuation, the trustee undertook a very detailed study which concluded that, despite uncertainty about the short-term impact of Brexit, the employers’ ability to provide financial support for the scheme remains strong – and can be expected to continue to be so for at least 30 years.
The trustee was required to formally consult with UUK – acting on behalf of all individual participating employers – on this aspect in September 2017.
As well as this, it looked at a range of factors, to make sure the scheme has enough money to provide members’ benefits, including:
- the level of return expected from our investments;
- price inflation and how much pensions might increase;
- how much members might earn in the future and therefore pay into their pensions over their working lives;
- how long members might live and claim their pensions;
- whether members have any beneficiaries that might also receive pensions after their deaths.
The next part of the process is to determine the amount of money needed to cover the benefits already promised and the required contributions for future benefits in light of the risk that employers can, and are willing, to support. The trustee must, by law, apply prudence to certain assumptions when doing this.
The valuation informs the strategy for contributions, benefits, investments and recovering any funding deficit as a result – essentially, it helps the trustee decide how to balance the level of investment with the expected cost of providing those benefits.
- What happened to the proposals agreed by the Joint Negotiating Committee (JNC) in January 2018?
The JNC proposed a series of benefit changes in January 2018, and employers were ready to consult on these in March 2018. However after further discussion between member representative body UCU and employer representative body UUK, the JNC withdrew those proposals and no replacement proposals were put forward.
UUK and UCU separately agreed to set up a Joint Expert Panel (JEP) to assess the 2017 valuation.
- What is the Joint Expert Panel (JEP)?
While the JEP is not part of the cost sharing process or the USS governance structure, the USS trustee has engaged fully with it and has fulfilled all information and briefing requests.
The JEP has reported its findings to UUK and UCU for both parties to consider. Based on the JEP's findings, the JNC may propose changes to benefits which, subject to due diligence by the trustee, would then be subject to a further consultation by employers with affected employees and their representatives.
- What is Universities UK?
Universities UK (UUK) is the representative organisation for UK universities and it supports the work of universities and promotes their interests. It represents the employers in the scheme and provides five representatives from UUK sit on the Joint Negotiating Committee. It also nominates four members of the trustee board.
- What is the University and College Union?
University and College Union (UCU) is a trade union and professional association for academics, lecturers, trainers, researchers and academic-related staff working in further and higher education throughout the UK. It represents the members in the scheme and five representatives of UCU sit on the Joint Negotiating Committee. It also nominates three members of the trustee board.
- Why is it proposed that members and employers pay more, when the JNC hasn’t sanctioned changes?
Cost sharing is the default process applied under the scheme rules when the JNC has been unable to decide how to address a change in the cost of the scheme. These rules (76.4-76.8) were introduced by the JNC in 2011 and updated in 2014.
- What do the cost sharing rules actually say?
You can read the scheme rules on the USS website. The cost sharing process is covered in rules 76.4-76.8.
- What happens if I have a voluntary salary cap or Enhanced Opt Out?
Under the proposals, members with Enhanced opt-out will not be affected by any proposed increases in contributions. Contributions from members with a Voluntary Salary Cap would increase in line with the proposals up to the level of the cap, with their optional contributions above the cap to retain death and ill-health benefits remaining as they are currently.
- Why is the trustee expecting lower investment returns in the future?
Since 2014, the investment environment has been much more challenging than anticipated. Expected future investment returns form an important part of the valuation: the trustee subtracts the returns it can reasonably expect to make in future from the estimated cost of providing benefits to members. This gives a present day view of the scheme’s funding level and, in turn, the contribution rate required for a given level of benefits. Lower future expected returns have to be offset by higher future contributions, reduced future benefit promises - or a balance of the two.
- What is risk in the context of a pension scheme?
Risk is the potential for loss, or for not meeting objectives. It reflects the scope for negative outcomes, which is often measured in terms of the likelihood and the potential impact of these outcomes. For a defined benefit arrangement such as the USS Retirement Income Builder, risk manifests itself in many ways, such as: in investments whose value falls below target; in liabilities whose value may increase more than expected; in the required contributions which may be greater than budgeted; and in varied manifestations of operational, legal and regulatory risks. Similarly for a defined contribution arrangement such as the USS Investment Builder, risk also manifests itself in different ways, such as: in investments whose value falls below target or fails to keep pace with inflation; in life expectancy that may exceed the period for which retirement saving was planned; and in operational, legal and regulatory challenges.
- Who decides on the approach to risk?
The approach to risk is decided by the trustee board but is informed by a consultation with UUK, which in turn surveys all USS employers. The trustee also seeks the views of its independent scheme actuary and covenant adviser, in reaching its conclusions.
- Who decides where USS invests?
The trustee is responsible for investment decisions, and it consults participating employers on the overriding investment principles. Day to day investment management and advisory services are provided to the trustee by USS Investment Management Limited (USSIM), the trustee's in-house investment company.
- What do I do if my question isn’t answered here?
If, after you’ve explored this website, you have any questions about the consultation, speak to the pensions contact at your workplace or contact your UCU or other recognised representative.