1. Emelda Nicholroy Head of Pensions Policy
Pensions Update
Emelda Nicholroy
Head of Pensions Policy

2. Common queries to UCEA
What options do HEIs have in relation to pensions?
What risks are HEIs running by participating in DB pension schemes?
What is the sector doing about staff affected by pensions tax?
What else is coming up that we should be aware of?

3. Dealing with a pensions legacy
Pre-92s
USS set up to mirror Teachers’ Pension Scheme
Most run their own local scheme for professional services staff
Post-92s
LA background means public sector schemes
TPS for academics
LGPS for professional services staff
University hospitals offer NHSPS
Auto enrolment schemes for casual staff

4. Example Pre-92 UniversityFS
From 0% to 9%
18%
USS
Hybrid – CARE plus DC over 55.5K
From 5% to 25%
SAT
8% + 1%
CARE DC
16.48%
TPS
CARE FS
From 7.4% to 11.7%
Example initially shows a HEI with:
Main academic scheme is USS but employees now split between FS and CARE
Small number in TPS, FS for the moment but all moving to CARE in 2015
Support staff in DB SAT, was final salary but this closed and now all have CARE – may or may not have kept the FS link for past service
Casual staff are auto enrolled into NEST for the minimum contribution
Then overlays the different employer contribution rates (which we expect to all go up!)
Plus employee contribution rates which also vary widely
ALSO note they decided to use USS for re-employed pensioners with a significantly higher contribution rate than anyone else
Minimum 1% increasing to 3% by 2019
Minimum 1% increasing to 5% by 2019
NEST

5. HEI participation (1) USS
Under terms of Trust Deed participating employers required to enrol any eligible employees in USS (academic or academic related posts)
Auto enrolment removes ability to have non-pensionable posts
Cannot enrol USS eligible employees in an alternative scheme or pay into an alternative scheme for them (exception for clinical academics in NHSPS)
Pensionable pay definition set by USS Trustee
Unable to “retire and return” unless into a different role

6. HEI participation (2) TPS LGPS NHSPS Participate due to being a HEC
HEIs differ on definition of “teacher”
Pensionable pay defined by scheme
LGPS
Scheduled body due to being HEC
Any employee not eligible for another public sector scheme joins LGPS
Admitted body by application to fund
Redundancy entitlement to enhanced pension
NHSPS
Only “medical school” teaching medical/dental students

7. Governance Governance structure varies by scheme TPS/NHSPS LGPS USS
Scheme advisory board – HE rep
Pensions board – HE rep
LGPS
Scheme advisory board – HE rep as part of Education employers
Local pensions boards – some HEI have reps
Local committees – few HEI reps or observers
USS
Trustee board – 3 UUK nominees
Joint Negotiating Committee – 5 UUK nominees
Funding and benefits sub-committee – UUK and UCEA reps

8. HEI control
Increasingly strong HE employer voice BUT little direct control of cost or benefits
USS
Assumptions and employer contributions set by Trustee after consultation with employers
Benefits and employee contributions negotiated through JNC with chair having casting vote
Changes to JNC need to be agreed by JNC
Usually offer separate scheme or support staff that HEI manages
Public sector
Mainly government department view and TUs
Valuation assumptions set by GAD and HMT
Cost management process only caps certain elements of future service cost NOT the deficit
LGPS admitted bodies have more control

9. Accounting – FRS102
USS accounted for as DC BUT now need to disclose cost of deficit recovery payments on balance sheet
Could impact on level of surplus shown in Statement of Comprehensive Income and reduce I&E reserves or net assets
TPS unfunded so deficit notional therefore treat as if DC
No change, still off balance sheet
LGPS/local SAT accounted for as a DB scheme already as share of assets/liabilities can be identified
No impact on balance sheet
BUT no longer account for return on pension assets instead use net interest leading to increased finance charge
May cause reduction in income (depending on assets held)

10. Options
USS
Close scheme and pay s75 debt (share of deficit on a prudent “buy out” basis)
TPS/LGPS
Scheduled employers cannot chose to close LGPS/TPS
Can offer an alternative scheme if members opt out
Can open a subsidiary and use that to employer new staff (and possibly transfer existing staff)
LGPS admitted bodies can decide to close to new entrants/future accrual, but there may be an impact on cost

11. Risks
HEIs are open to a wide range of risks in relation to their pension provision including:
Cost of future service
Cost and duration of deficit funding
Appropriateness of benefits for staff
Affordability of employee contributions
Comparability of benefits and contributions in different schemes
Possibility of industrial action
Reputational risks
Disclosures in accounts
Limitations on business restructuring
Implications for mergers
Possibility of triggering section 75 debt
Legislative change

12. Senior staff and pensions tax
Increasing numbers of staff affected – not just senior team
Especially due to Tapered Annual Allowance taking into account income from all sources
Scheme options differ:
USS – Enhanced Opt Out, Voluntary Salary Cap and DC AVC options
TPS/NHSPS – full opt out only
LGPS – 50/50 (but few members affected)

13. Reaction to pensions tax issues
Institution response in one of three camps:
No policy in place – few staff affected (may review on case by case basis)
Pay a cash supplement if the member opts out – aim is to consider total reward but supplement calculated in various ways
Treat it as a personal tax issue and decide not to offer a cash supplement – often due to equality concerns

14. Workforce issues
Once member has opted out of the pension scheme their benefit options may be limited
USS does not allow flexible retirement post EOO election
DIS and ill health cover rely on member election (USS only)
Enhanced/early pension on redundancy – policy changes needed?
What about differences between the schemes?
NHS/LGPS/TPS members cannot opt for DIS or ill health cover
How to apply consistency in assessing the value of the reward package?
How to calculate, document and manage any cash supplement?
Equity – opt-out for costs vs. opt-out for tax
Interface with auto-enrolment duties
A case for policy transparency?
Need to check a couple of these with USS…

15. Further information

16. Current issues Scheme valuations ongoing
LGPS review of third tier bodies
TPS review of subsidiaries
General election has stopped a number of other consultations
SPA increases
S75 debts
Green paper on DB affordability

17. Questions?
© UCEA 2017