1. Bangor University Pension and Assurance Scheme
Consultation on Proposed Changes to the Scheme
October 2009

2. Agenda for today
Background to the proposals Mike Davies, Director of Finance
Details of the proposals Ted Belmont or Graham Burgess (Xafinity, pensions advisers)
Next steps Mike Davies
Questions

3. Purpose of consultation
Consultation means ensuring that employees:
understand the proposed changes and their impact
have the opportunity to ask questions
are given a forum for expressing their views, which the employer must consider
Consultation is not negotiation
The consultation period runs until 22 December

4. Purpose of Today’s Meeting
To provide the background to the proposed changes
To explain the changes that are being proposed
To give all staff the opportunity to put their point of view and ask questions

5. Why Changes are Necessary
Financial pressures on the University
Budgetary constraints and reduced income
Increasing costs of a Defined Benefit pension scheme
Need to reshape the Scheme to ensure that we can continue to provide Defined Benefit pensions
Proposals discussed in UPAS Review Group since June 09

6. Two Types of Pension Scheme
Defined Benefit
Defined Contribution

7. Defined Benefit
A ‘promise’ is made to each member that they will receive a pension calculated in accordance with a specified formula - so the pension, the ‘Benefit’, is ‘Defined’
The cost of financing the pension ‘promise’ is not fixed. Employers have to make up any shortfall caused by poor investment returns, increasing longevity, legislation changes etc.
All the risk lies with employer, not the employee

8. Defined Contribution
Contributions from members and employer are fixed (“defined”)
Contributions are invested, then used to buy a pension at retirement
Size of pension depends on
level of contributions
investment performance
cost of buying a pension at retirement
All the risk lies with employee, not the employer

9. Pension Provision is Changing
“Cost is driving the move from DB to DC” (The Guardian 17/08/09)
Why have pension costs increased?
Disappointing investment returns
Tax treatment of pension investment dividends
Lower interest rates
People living longer
Employers’ Response
Closure of Defined Benefit Schemes to future accrual
Shift to Defined Contribution schemes

10. This is what we are not proposing to do

11. And the public sector is not immune
27% of Welsh council tax goes on council pensions (Welsh Conservative Party reported in Western Mail)
An increased retirement age and a move to Career Average must be seriously considered in the Local Government Pension Scheme (Mike Taylor, Chief Executive, London Pension Fund Authority)
“We will need to look at each of these schemes in the public sector and make sure they are sustainable” (Yvette Cooper, Secretary of State for Work and Pensions)

12. BUPAS - The proposed changes
No changes to benefits you have already built up
Current
Proposed
Defined Benefit – Final Salary
Defined Benefit – Final Salary (past service), Career Average (future service)
Open to new members
Remains open to new members
Member contributions 7.1%
Member contributions 7.85%
1/80 pension accrual rate
1/100 pension accrual rate
3/80 cash accrual rate
3/100 cash accrual rate
Favourable early retirement terms for pre-97 members
All members treated equally for future service
‘Best Benefit Guarantee’
BBG removed for future service

13. SUMMARY OF CURRENT BENEFIT CALCULATION

14. Bangor University Pension and Assurance Scheme Current Basis
1/80th
Pensionable
Service x
Years and days of Scheme membership

15. Bangor University Pension and Assurance Scheme Current Basis
1/80th
Pensionable
Service
Final
Pensionable
Salary x x
Highest of 3 calculations

16. Bangor University Pension and Assurance Scheme Current Basis
1/80th
Pensionable
Service
Final
Pensionable
Salary
Annual
Pension x x =
Example: /80 x 20 years x £24,000 = £6,000 p.a.

17. Cash sum at retirement
‘Automatic’ cash = 3 x pension
Member can choose to exchange pension for additional cash (within HMRC limits)
Cash is tax-free under current legislation

18. = Career Average Revalued Earnings
WHAT IS CAREER AVERAGE?
Sometimes called CARE
= Career Average Revalued Earnings

19. Final Salary v Career Average
Final Salary - stayer
Linked to your personal salary increases
Pension earned in Year X
Pension at retirement
Final Salary - leaver
Linked to your personal salary increases until you leave
Pension earned in Year X
Then linked to price inflation (RPI)
Pension at retirement
Career Average
Linked to price inflation (RPI) throughout
Pension earned in Year X
Pension at retirement

20. The CARE Pension 1/100th Pensionable Service Career Average
no change change from ‘Final Pensionable Salary’
1/100th
Pensionable
Service
Career Average
Revalued Earnings
(CARE)
Annual
Pension x x =

21. Features of Career Average
Based on earnings throughout period of membership (instead of earnings at the end)
Maintains the certainty of a Defined Benefit scheme
Fairer between members

22. How a CARE pension builds up – example
A member’s Pensionable Salary in year 1 is £24,000. For that year the CARE pension earned would be
 1  x £24,000 = £240 per annum
100th
In year 2 Pensionable Salary increases to £27,000, the CARE pension earned would be
 1  x £27,000 = £270 per annum
In year 3 Pensionable Salary increases to £28,500, the CARE pension earned would be
 1  x £28,500 = £285 per annum
In year 4 Pensionable Salary, owing to a move to a less demanding role, reduces to £27,300, the CARE pension earned would be
1 x £27,300 = £273 per annum

23. Assumed RPI Inflation Increase Pension Accumulated to Date
How revaluation works
Year
Assumed RPI Inflation Increase
Pension Accumulated to Date 1
£240
£ 240 2
3.00%
£247
£270
£ 517 3
3.10%
£255
£278
£285
£ 818 4
3.50%
£264
£288
£295
£273
£1,120
Cash = 3 x pension

24. WHAT ABOUT MY PENSION EARNED
PRIOR TO THE CHANGES?

25. The Pension Earned So Far – no change!
CARE starts on 1 March 2010*
Pension earned prior to 1 March 2010 calculated on current basis:
1/80th x
Pensionable Service x
Final Pensionable Salary – link maintained =
Annual Pension
From joining BUPAS to 28 February 2010*
As at
date of retirement
(or leaving)
Cash basis on 3/80 build up rate is the same
* Illustrative date – not yet fixed

26. HOW WILL THE CONTRIBUTION INCREASE AFFECT ME?

27. Member contributions Increase from 7.1% to 7.85% of Pensionable Salary
Increase is 0.75% but you get tax relief
For basic-rate taxpayer, net cost is 0.6%

28. Example John’s pensionable salary is £20,000
He currently pays 7.1% of £20,000 = £1,420 p.a.
Proposed contribution is 7.85% of £20,000 = £1,570 p.a.
So extra cost to John is = £ p.a.
= £12.50 a month before tax
= £10 a month after tax relief

29. OTHER CHANGES PROPOSED

30. Early retirement – Pre-97 members only
Retirement at the University’s request
Unreduced pension if over age 60
No change proposed
Voluntary retirement
Proposed reduction to future-service element

31. Personal Pension Account comparison
Compares BUPAS pension with a notional Defined Contribution pension
Member gets whichever is higher (BUPAS pension in 99%+ of cases)
Proposal is to drop this comparison for future service.

32. OTHER CHANGES NOT PROPOSED

33. Changes not proposed Reduction in spouse’s pension rate
Reducing the rate of pension increase once in payment ie a ‘cap’ on inflation linking
Increasing member contribution rate to 9%
Closing the scheme to new entrants
Adopting a two tier scheme

34. WHAT HAPPENS NEXT?

35. The Ongoing Consultation
Feedback to the University
University response to feedback included on ‘Question & Answer’ bulletin posted on notice board and intranet
Consultation ends on 22 December
Outcome of the consultation will be announced early in 2010

36. QUESTIONS / COMMENTS
s/clients/University of Wales, Bangor/Benefits/Company/Strategy/Presentation Oct 09 v3