Employer consultation 2015 Consultation with affected employees on proposed changes to the Universities Superannuation Scheme

¹ Assumes 5% and 10% indexation slicing as per current rules on post October 2011 service only. 2 The proposed changes – a brief summary 2March 2015Consultation on proposed changes to the Universities Superannuation Scheme KEY FEATURES OF THE PROPOSED SCHEME CHANGES DB Section Salary link for past service CPI¹ DB future benefit design CRB DB pension accrual rate 1/75 DB lump sum accrual rate 3/75 DB salary threshold £55,000 Revaluation of salary threshold CPI¹ DB employee contribution rate 8% Active revaluation of CRB benefits, and indexation CPI¹ DC Section Employer DC contributions above threshold 12% Other employer DC contributions Up to 1% match on all salary DC employee contribution rate on salary above the threshold 8% DC investments will be separate from DB and there will be a number of options including a default fund Employers’ contribution commitment 18% The employer contribution rate will be a uniform 18% of salary for all employers, regardless of the take up by employees of the DC matching contribution arrangement. A minimum employer contribution of 18% will apply for the next two valuations, ie up to 31 March 2020.

Current final salary section 33 Ending the final salary link 3March 2015Consultation on proposed changes to the Universities Superannuation Scheme Number of years past service Pensionable salary at retirement Pension Accrual rate (1/80 th ) X ÷ = £45,000 X 10 years ÷ Accrual rate = £5, 625 a year Proposed treatment of past service final salary benefits under the new section of the scheme Number of years past service to implementation date Pensionable salary at proposed implementation date Pension Accrual rate (1/80 th ) X ÷ = USS pension increases until retirement X

44 Impact on CRB members 4March 2015Consultation on proposed changes to the Universities Superannuation Scheme pension benefits earned in each year Pension X = USS pension increases until retirement Current CRB section Proposed treatment of past service CRB under the new section of the scheme Past pension benefits earned each year until proposed implementation date Pension USS pension increases until retirement* X = Pensionable salary ÷ Accrual rate (1/80 th ) = £35,000 ÷ Accrual rate (1/80 th ) = £437 per year X Increases of 2.5% over 10 years (£437 x ) = £559 per year £437 a year X Increases of 2.5% over 10 years (£437 x ) £559 per year = *Assume a member retires after 10 years revaluation to retirement.

5 Proposed new benefit arrangement – new defined benefit section 5March 2015Consultation on proposed changes to the Universities Superannuation Scheme New defined benefit section for pension benefits provided after the implementation date - Career revalued benefits - Improved accrual rate – 1/75 th of pensionable salary - up to a salary threshold (proposed to be £55,000) Example Pensionable salary of £35,000 per year Accrual rate of 1/75ths ÷ = £466 a year X Increases of 2.5% over 9 years (£466 x )* = £582 a year * Revaluation is only applied after the completion of the accrual of £466.

6 Pension provision on earnings above the threshold 6March 2015Consultation on proposed changes to the Universities Superannuation Scheme New defined contribution section -Contributions on pensionable salary above the salary threshold (proposed to be £55,000) -Members’ contributions will be 8% and employers contributions will be 12% in respect of salary above the threshold -Choice of investment options and choice of retirement options Example – career revalued benefits on salary at the salary threshold * Revaluation is only applied after the completion of the accrual of £733. Revaluation applies from 1 April 2017 to 1 April Pensionable salary of £60,000 per year Accrual rate of 1/75ths applied to first £55,000 ÷ = £733 a year X Increases of 2.5% over 10 years* (£733x ) = £916 a year Employer contribution 12% of £5,000 Member contribution 8% of £5,000 Example – defined contribution provided on salary above the salary threshold *Applied 9 years investment growth i.e. 5% pa applied from end of year one until retirement, assumed 1 April = £ 1,000 a year + Amount made from investment (5%) XX After 10 years (£1,000 x )* = £1,551 DC account

7 Member contribution rate 7March 2015Consultation on proposed changes to the Universities Superannuation Scheme Current final salary member contribution rate 7.5% Current CRB member contribution rate 6.5% Member contributions for proposed new section 8%

8 Employer contribution rate 8March 2015Consultation on proposed changes to the Universities Superannuation Scheme Current employer contribution rate 16% Employer contributions for proposed new section 18% The future service benefits to be provided from the implementation date (that is, the proposed CRB benefits based on the 1/75th formula, plus 3/75ths lump sum, up to a salary threshold, and including death in service and incapacity benefits) The employer contributions to the funding deficit (that is the contributions which will be required under the recovery plan to fund the deficit) The employer contribution to the defined contribution component (in respect of salaries in excess of the threshold, for relevant members) The employer contribution to the defined contribution matching facility (in cases where members choose to make an additional contribution of 1%)

99March 2015Consultation on proposed changes to the Universities Superannuation Scheme Further implications of the proposed changes AVCs Transfers in Future transfers in on an entirely defined contribution basis Ending of USS’s membership of the public sector transfer club Consideration needed regarding non-club transfers approach Consideration of defined benefit (added years and CRB) and defined contribution facilities Option of continuity developed for existing regular instalment added years contracts and revalued benefit AVCS in accordance with application

10 March 2015Consultation on proposed changes to the Universities Superannuation Scheme The consultation process Employer consultation with affected employees Planned start date 16 March 2015 Planned end date 22 May 2015 Where to find out more? -Interactive modeller -Detailed consultation material -Q&As -Ask your USS pensions contact