Changes to USS Presentation for USS members Colin

Changes to USS Presentation for USS members Colin Busby and Eifion Morris APMI Every effort has been made to present accurate information. Members are advised to check with their employer and/or the USS guides to confirm their understanding before acting on any information given. This presentation may be recorded for training and audit purposes.

Change • Changes affecting current members • Changes affecting new joiners • Tax relief allowances from 2011 • Your questions

Changes affecting current members – Final salary section

Changes affecting current members 1 October 2011 Final Salary Intact Higher Normal Pension Age Higher contribution Change to pension increases Flexible retirement

Higher Normal Pension Age (NPA) What is Normal Pension Age? • USS has always had age 65 Normal ‘Retirement’ Age • In practice all members could have a full pension at age 60 (assuming employer consents and retiring from active service) • NPA will mean that you can still retire before 65, with employer consent, but service from 1 October 2011 will be reduced for each year/part year earlier than age 65 Exemption for those aged 55 or over on 1 October 2011 • Anyone with a birthday on or before 1 October 1956 exempt from the NPA change only

Normal Pension Age (NPA)65 Example –retiring at 60 with employer consen Age at 30 September 2011 50 Service to 30 September 2011 20 years Service since I October 2011 10 years Pensionable salary £ 45, 000. 00 • 30/80 X £ 45, 000 • Total =£ 16, 875. 00 pa Before change After change • 20/80 X £ 45, 000 = £ 11, 250. 00 • Plus • (10/80 X £ 45, 000) X 0. 793 = £ 4, 460. 62 • Total = £ 15, 710. 00 pa

I’m buying extra service to retire at 60 You can still access your pension at 60 • Although it may be lower You will still get the full value of the extra service you’re buying • On retirement from active membership you can still draw benefits from Added Years in full from the age chosen when contract taken out

Change to redundancy terms Redundancy • wef 1 October 2013 automatic provision of full early retirement pension ends • employer can still choose to augment if they wish

Normal Pension Age to be linked to rise in State Pension Ages NPA to increase in line with State Pension Ages • 1 April 2020 66 (unconfirmed date) • timetable to be announced for increase to State Pension Ages Retirement before NPA will be classed as early retirement • but only in respect of service after any increase

Future increases to NPA - 66 65 100% 96 % 65 April 2020 NPA increases to 66

Contribution increase to 7. 5% Increase from 6. 35% to 7. 5% Salary (pa) Cost from takehome pay at 6. 35% (per month) £ 10, 000 £ 36. 00 £ 15, 000 £ 50. 00 £ 30, 000 £ 94. 00 £ 45, 000 £ 139. 00 £ 60, 000* £ 190. 50 £ 75, 000* £ 238. 00 * 40% tax relief applied Cost from takehome pay at 7. 5% (per month) £ 43. 60 £ 61. 80 £ 116. 80 £ 173. 60 £ 225. 00 £ 281. 00 Impact on take home pay each month - £ 7. 60 - £ 11. 80 - £ 22. 80 - £ 34. 60 - £ 34. 50 - £ 43. 00

Pension increase change Rules before 1 October 2011 • Pensions (in payment and for deferred members) are reviewed each April in line with increases to ‘official pensions’ • ‘official pensions’ = Civil Service, Police, Teachers, NHS • Official pensions increase in line with Consumer Price Inflation since April 2011

Pension increase change Introduction of cap to increases • Cap on increases applied to service after 1 October 2011 Increases to official pensions USS increase 5% pa or less Increases matched More than 5% pa but less than 15% pa 5% plus 50% of increases above 5% More than 15% pa Overall ceiling of 10% pa

Flexible retirement from age 55 • Subject to consent of employer and USS • 2 months’ notice required by USS 2 ‘Flexes’ possible, 3 rd is full retirement • Hours must reduce by at least 20% • Draw up to 80% of benefits (minimum 20%) • Early retirement reductions apply before age 60 You continue to build up benefits • If you flex, you continue to build up further benefits on a part-time basis and remaining benefits based on future full-time equivalent pensionable salary

Flexible retirement – early payment reductions From 60 • Reductions apply to all service for pre 60 flexes Before 60 • Exempt members • Those age 55 or more on 1 October 2011 can receive benefits from age 60 in full with employer consent • Non-exempt • Reductions to post 1 October 2011 service, pre 2011 service in full if employer consents

Other changes Late retirement (continuing after age 65) • From 1 October 2011 employer must continue to pay their share Exceeding 40 years in USS • From 1 October 2011 employer must continue to pay their share Employer is not required to back-date

What stays the same? Death in service benefits Incapacity benefits Added years AVC contracts • For existing contracts • For new contracts for final salary members USS money purchase AVCs (Prudential) Transfers-in Employer still contributes 16% of salaries

Changes affecting new entrants from 1 October 2011

Who joins new section? Any new joiner from 1 October 2011 who has never been in USS OR Deferred member of the final salary section, having left before 1 October 2011 and rejoins after 31 March 2014 Left the final salary section with deferred benefits after 1 October 2011 and rejoin the scheme more than 30 months after leaving OR

How does Career Revalued Benefits work? Pension calculated each year & ‘banked’ • Formula is 1/80 X Salary for year • Plus 3 X Pension as tax-free cash Banked pension & cash increased each year Increases to official pensions USS increase 5% pa or less Increases matched More than 5% pa but less than 15% pa 5% plus 50% of increases above 5% More than 15% pa Overall ceiling of 10% pa

Cost sharing

Cost sharing Historically employer has met full cost of benefits (in excess of employee contribution of 6. 35% of salary) Future rises in costs shared 35: 65 between members and employers Contribution rates reviewed normally every 3 years

Tax relief allowances from April 2011

Tax relief – pre April 2011 Tax relief • 20%/40% tax relief on all contributions Current limit on maximum pension pot is a capital value of £ 1. 8 million • Not many USS members affected

Tax relief changes – April 2011 Increase in capital value of benefits each year measured • Capital value = Growth in pension X factor (19: 1 for USS) • Allowance for inflation on benefits already built up If capital value more than limit of £ 50, 000 from April 2011 tax charge applies • Tax charge via annual return • Always in arrears • Clarification on how charge will be met Maximum benefit value at retirement reducing to £ 1. 5 million from April 2012 • Would affect USS members with 40 years’ service and £ 130, 000 pa salary

Salary at start of Salary at end of year (5% increase) Pension and lump sum accrual (19: 1) 10 years 20 years 30 years 40 years £ 50, 000 £ 52, 500 £ 14, 499 £ 16, 756 £ 19, 012 £ 21, 268 £ 60, 000 £ 63, 000 £ 17, 399 £ 20, 107 £ 22, 814 £ 25, 522 £ 70, 000 £ 73, 500 £ 20, 299 £ 23, 458 £ 26, 617 £ 29, 775 £ 80, 000 £ 84, 000 £ 23, 199 £ 26, 809 £ 30, 419 £ 34, 029 £ 90, 000 £ 94, 500 £ 26, 099 £ 30, 160 £ 34, 221 £ 38, 283 £ 100, 000 £ 105, 000 £ 28, 999 £ 33, 511 £ 38, 024 £ 42, 536 £ 110, 000 £ 115, 500 £ 31, 899 £ 36, 862 £ 41, 826 £ 46, 790 £ 120, 000 £ 126, 000 £ 34, 799 £ 40, 214 £ 45, 629 £ 51, 044 £ 130, 000 £ 136, 500 £ 37, 698 £ 43, 565 £ 49, 431 £ 55, 297 £ 140, 000 £ 147, 000 £ 40, 598 £ 46, 916 £ 53, 233 £ 59, 551 £ 150, 000 £ 157, 500 £ 43, 498 £ 50, 267 £ 57, 036 £ 63, 804 £ 160, 000 £ 168, 000 £ 46, 398 £ 53, 618 £ 60, 838 £ 68, 058 £ 170, 000 £ 178, 500 £ 49, 298 £ 56, 969 £ 64, 640 £ 72, 312 £ 180, 000 £ 189, 000 £ 52, 198 £ 60, 320 £ 68, 443 £ 76, 565 £ 190, 000 £ 199, 500 £ 55, 098 £ 63, 671 £ 72, 245 £ 80, 819 £ 200, 000 £ 210, 000 £ 57, 998 £ 67, 023 £ 76, 048 £ 85, 073

Salary at start of Salary at end of year (10% increase) Pension and lump sum accrual (19: 1) 10 years 20 years 30 years 40 years £ 50, 000 £ 55, 000 £ 20, 437 £ 28, 631 £ 36, 824 £ 45, 018 £ 60, 000 £ 66, 000 £ 24, 524 £ 34, 357 £ 44, 189 £ 54, 022 £ 70, 000 £ 77, 000 £ 28, 612 £ 40, 083 £ 51, 554 £ 63, 025 £ 80, 000 £ 88, 000 £ 32, 699 £ 45, 809 £ 58, 919 £ 72, 029 £ 90, 000 £ 99, 000 £ 36, 786 £ 51, 535 £ 66, 284 £ 81, 033 £ 100, 000 £ 110, 000 £ 40, 874 £ 57, 261 £ 73, 649 £ 90, 036 £ 110, 000 £ 121, 000 £ 44, 961 £ 62, 987 £ 81, 014 £ 99, 040 £ 120, 000 £ 132, 000 £ 49, 049 £ 68, 714 £ 88, 379 £ 108, 044 £ 130, 000 £ 143, 000 £ 53, 136 £ 74, 440 £ 95, 743 £ 117, 047 £ 140, 000 £ 154, 000 £ 57, 223 £ 80, 166 £ 103, 108 £ 126, 051 £ 150, 000 £ 165, 000 £ 61, 311 £ 85, 892 £ 110, 473 £ 135, 054 £ 160, 000 £ 176, 000 £ 65, 398 £ 91, 618 £ 117, 838 £ 144, 058 £ 170, 000 £ 187, 000 £ 69, 485 £ 97, 344 £ 125, 203 £ 153, 062 £ 180, 000 £ 198, 000 £ 73, 573 £ 103, 070 £ 132, 568 £ 162, 065 £ 190, 000 £ 209, 000 £ 77, 660 £ 108, 796 £ 139, 933 £ 171, 069 £ 200, 000 £ 220, 000 £ 81, 748 £ 114, 523 £ 147, 298 £ 180, 073

Salary at end Salary at start of year (Promotion) Pension and lump sum accrual (19: 1) 10 years 20 years 30 years 40 years £ 15, 000 £ 20, 000 £ 14, 444 £ 25, 214 £ 35, 985 £ 46, 755 £ 20, 000 £ 30, 000 £ 27, 175 £ 49, 452 £ 71, 730 £ 94, 007 £ 36, 000 £ 45, 000 £ 27, 540 £ 46, 264 £ 64, 989 £ 83, 713 £ 100, 000 £ 250, 000 £ 373, 374 £ 722, 261 £ 1, 071, 149 £ 1, 420, 036

AVC options for Final Salary members

AVC Options Added years • Existing contracts unchanged • Still payable in full from age stipulated in contract • Pensions from contracts taken out from 1 October 2011 will have cap applied to pension increases Money purchase (Prudential) • No change

AVCs and the Annual Allowance Still very attractive for most USS members • You can pay in up to the £ 50, 000 pa Annual Allowance • Receive full tax relief Money Purchase AVC payments simply add annual contribution to work out Annual Allowance • Annual Allowance without AVCs = £ 24, 000 • Scope to pay up to £ 26, 000 in Money Purchase AVCs Added Years AVCs will increase amount of service each year • Calculation therefore based on increase in pension value over year, including Added Years AVCs

How to pay AVCs – Added Years Money Purchase Use modeller on www. uss. co. uk Contact Prudential directly Contact Pensions Office Face-2 -face 0800 515914

Summary of changes Final salary calculation retained for existing members and certain re-joiners • Normal Pension Age now 65 (for future service) • Contribution rate increase to 7. 5% • Pension increase changes • Flexible retirement • Changes for retirements due to redundancy • Revalued Benefits section of scheme for new entrants

More information • Pensions office contacts • USS website – www. uss. co. uk • Prudential – www. pru. co. uk/uss – 0800 515914