1. Head of Member Communications
USS 2016
Eifion Morris, APMI
Head of Member Communications

2. Agenda Introduction Past membership Future membership1
Past membership 2
Future membership 3
Career Revalued Benefits 4
Defined contribution 5
Other considerations 6
Questions 7

3. Introduction

4. Terminology Service and salary at retirement Salary each year
Final Salary
Service and salary at retirement
Career Revalued Benefits (CRB)
Salary each year
Defined Contribution (DC)
Investment fund

5. Changes from 1 April 2016

6. Past membership

7. Final Salary benefits cease
FSAL
CRB
2016

8. The calculation Service 1 80th Salary Pension Pension 5% 5% CPI USS
So, let’s look more closely at how we work out your benefits.
You can see the formula on the screen here.
Here’s a bit of pensions terminology-this formula is described as 80ths accrual. All that means is that your pension is worked out as 1/80th of your total membership, which is measured in years and days, multiplied by your final pensionable salary at 31 March This is where there’s a difference as a result of the changes. Before the changes that would have been your pensionable salary calculated when you retired, potentially a higher figure-we’ll come back to this in a moment.
So, if you had 20 years in the scheme the formula would be 20/80ths, or a quarter of your final pensionable salary at 31 March This will give us the amount of annual pension you have earned.
This pension will then increase in line with our standard pension increases up until retirement. Our standard pension increases copy what the state pays to what’s called ‘official pensions’ so pension schemes like public sector schemes. They pay increases that match the increase in Consumer Price Inflation.
We copy that to an extent, if their increases are up to 5% a year we will match that. 5% 5%
CPI
USS

9. The calculation Service 1 80th Salary Pension Pension 2.5% 10% 7.5% 5%
So you know now you will be entitled to a pension and a lump sum at retirement-but how is that worked out?
Well, here’s some terminology.
USS is a ‘defined benefit’ scheme which has two sections called wither the ‘Final Salary’ section or ‘Career Revalued Benefits’ section-this presentation is about the final salary section.
So what does all that mean. Well, ‘defined benefit’ simply means that your pension and tax-free lump sum at retirement are worked out using a formula, so the value is ‘defined’ by this formula.
You can see the formula on the screen here-it’s a very traditional pension scheme.
Your pension is worked out as 1/80th for each year of your membership of the scheme multiplied by your final pensionable salary at retirement. The tax-free lump sum is simply three times the value of the pension, that’s of course the standard package.
There’s one important piece of the formula that needs a bit more explaining though-your ‘final pensionable salary’, yet another bit of terminology. You would be forgiven for assuming this means literally your annual rate of pay at the point you leave or retire-I’m afraid that would be far too straightforward, you probably won’t be surprised to learn it’s a bit more complicated than that, it does however work in favour of you the member.
Final Pensionable Salary is never your actual annual pay at the point you retire. We look back over the last 13 years of your membership, or however long you were a member if that was less than 13 years. The next thing we do is to increase these historic salary figures in line with a price inflation index know as the Retail Prices Index, to reflect the increase in prices since the salary was recorded up to the date of leaving or retirement. So, we now have a level playing field in terms of salary. We then look for the best consecutive 12 months’ salary in the last 36 months and compare that to the best consecutive 36 month average salary in the last 13 years. Your final pensionable salary is the higher of these 2 figures.
So, that’s some terminology out of the way. I think the formula for full-time members is fairly simple to understand-if you contributed to USS for 20 years your pension would be:-
20 X 1/80 X Final Pensionable Salary
Plus of course three times the pension as a tax-free payment when you retire.
2.5%
10%
7.5% 5%
CPI
USS

10. The calculation Service 1 80th Salary Pension Pension 15% 10% CPI USS
So you know now you will be entitled to a pension and a lump sum at retirement-but how is that worked out?
Well, here’s some terminology.
USS is a ‘defined benefit’ scheme which has two sections called wither the ‘Final Salary’ section or ‘Career Revalued Benefits’ section-this presentation is about the final salary section.
So what does all that mean. Well, ‘defined benefit’ simply means that your pension and tax-free lump sum at retirement are worked out using a formula, so the value is ‘defined’ by this formula.
You can see the formula on the screen here-it’s a very traditional pension scheme.
Your pension is worked out as 1/80th for each year of your membership of the scheme multiplied by your final pensionable salary at retirement. The tax-free lump sum is simply three times the value of the pension, that’s of course the standard package.
There’s one important piece of the formula that needs a bit more explaining though-your ‘final pensionable salary’, yet another bit of terminology. You would be forgiven for assuming this means literally your annual rate of pay at the point you leave or retire-I’m afraid that would be far too straightforward, you probably won’t be surprised to learn it’s a bit more complicated than that, it does however work in favour of you the member.
Final Pensionable Salary is never your actual annual pay at the point you retire. We look back over the last 13 years of your membership, or however long you were a member if that was less than 13 years. The next thing we do is to increase these historic salary figures in line with a price inflation index know as the Retail Prices Index, to reflect the increase in prices since the salary was recorded up to the date of leaving or retirement. So, we now have a level playing field in terms of salary. We then look for the best consecutive 12 months’ salary in the last 36 months and compare that to the best consecutive 36 month average salary in the last 13 years. Your final pensionable salary is the higher of these 2 figures.
So, that’s some terminology out of the way. I think the formula for full-time members is fairly simple to understand-if you contributed to USS for 20 years your pension would be:-
20 X 1/80 X Final Pensionable Salary
Plus of course three times the pension as a tax-free payment when you retire.
15%
10%
CPI
USS

11. £ 3 The calculation Service 1 80th Salary Pension Pension PLUS
So you know now you will be entitled to a pension and a lump sum at retirement-but how is that worked out?
Well, here’s some terminology.
USS is a ‘defined benefit’ scheme which has two sections called wither the ‘Final Salary’ section or ‘Career Revalued Benefits’ section-this presentation is about the final salary section.
So what does all that mean. Well, ‘defined benefit’ simply means that your pension and tax-free lump sum at retirement are worked out using a formula, so the value is ‘defined’ by this formula.
You can see the formula on the screen here-it’s a very traditional pension scheme.
Your pension is worked out as 1/80th for each year of your membership of the scheme multiplied by your final pensionable salary at retirement. The tax-free lump sum is simply three times the value of the pension, that’s of course the standard package.
There’s one important piece of the formula that needs a bit more explaining though-your ‘final pensionable salary’, yet another bit of terminology. You would be forgiven for assuming this means literally your annual rate of pay at the point you leave or retire-I’m afraid that would be far too straightforward, you probably won’t be surprised to learn it’s a bit more complicated than that, it does however work in favour of you the member.
Final Pensionable Salary is never your actual annual pay at the point you retire. We look back over the last 13 years of your membership, or however long you were a member if that was less than 13 years. The next thing we do is to increase these historic salary figures in line with a price inflation index know as the Retail Prices Index, to reflect the increase in prices since the salary was recorded up to the date of leaving or retirement. So, we now have a level playing field in terms of salary. We then look for the best consecutive 12 months’ salary in the last 36 months and compare that to the best consecutive 36 month average salary in the last 13 years. Your final pensionable salary is the higher of these 2 figures.
So, that’s some terminology out of the way. I think the formula for full-time members is fairly simple to understand-if you contributed to USS for 20 years your pension would be:-
20 X 1/80 X Final Pensionable Salary
Plus of course three times the pension as a tax-free payment when you retire.
Tax Free 3

12. RPI Pensionable salary 2003 2013 2016
Now lets look at a very important part of the USS pension formula, your pensionable salary. We are a final salary scheme, but in fact it would be extremely unusual for your pensionable salary to equal the actual salary on the date of retirement, it might be slightly more or less. USS uses the best definition of pensionable salary currently allowed. We start off by obtaining up to the last 13 years worth of salary history, these historic salaries are then increased by the rise in price inflation from the date recorded to your retirement date. We now how a level playing field in terms of salary.
We then do two comparisons. Firstly we look to find the highest consecutive 12 months of salary in the last 36 months of employment and for most members this will be their last 12 months average salary.
We then look back through the whole 13 year history and find the highest consecutive 36 month average salary, we then use the higher of these two figures as pensionable salary.
What we are trying to do is find the highest possible salary in real terms. This is a safety net to catch members whose salary, for whatever reason is less in real terms at the end of their career than during an earlier period.
I should also mention pensionable salary. We are a final salary scheme and you might expect we would use your final salary to work out you pension, however, that’s not the case. For most members the pensionable salary will be your last 12 months of pensionable salary in USS. So, if you receive a pay rise 2 months before you retire then only 2/12ths of that higher salary is used in the calculation and 10/12ths of the previous salary. In fact we go back far more than 12 months, the last 13 years of your salary history is compared to ensure that we use your highest pensionable salary possible in the pension calculation.
2003
2013
2016

13. Pensionable salary calculation13
£ 22,218
£ 30,318
RPI
Revalued salary 12
£ 38,068
£ 28,566 11
£ 41,000
£ 31,740
Years to retirement 10
£ 45,922
£ 36,500 9
£ 28,566
£ 34,655 8
£ 35,468
£ 30,153 7
£ 31,740
£ 36,887 6
£ 37,580
£ 33,327 5
£ 34,914
£ 38,760
Here’s a simplified example to help illustrate this. This member had a salary drop in October 1997 from £23K to £18k, not because they went part time (remember we’d still use the full-time equivalent salary), this drop is due to an actual drop in the level of earnings. This might be through choice, or perhaps a contract came to an end and the new contract had a lower salary.
We can see over the next 5 years a healthy growth in salary so that at the point of retirement the members actual salary is £ In a typical final salary scheme the Final Pensionable Salary used would be an average of the last 12 months, something like £24k. But we can go back through the salary records to the period ending October 1997, the highest 36 period in terms of salary, and based on the salaries after RPI indexation we can see a pensionable salary figure of over £25.5K, much higher than the £24k figure. 4
£ 39,701
£ 36,501 3
£ 39,857
£ 37,612 2
£ 38,889
£ 39,982
Retirement day
£ 40,000
£ 40,000

14. Existing CRB section benefits
2016

15. Existing AVC options FSAL/CRB options
No new Added Years after 1 Nov’15
Added Years benefits based on pensionable salary at 31 Mar’16 plus pension increases
Existing arrangements automatically continue unless you cease them
No new RBAVCs from 1 Apr’16
All future new AVC payments in to the new defined contribution account

16. Existing AVC options Money Purchase AVCs Existing funds
Still able to take as tax-free cash or pension
Future savings possible
This part of fund can’t be used to provide additional pension (from USS)
Transfer-out is possible
Future contributions to DC accounts from implementation

17. Future membership

18. CRB Phased implementation Salary £,000 DEFINED CONTRIBUTION 1 Oct 2016
1 Apr 2016

19. Career Revalued Benefits From April 2016

20. New CRB section
CPI
£55K
CRB 1
75th

21. We now need to add increases ‘revaluation’
Example
Salary
Pension calculation
Banked
£37,500
£39,375
£40,781
£42,187
TOTAL : £2, pa
We now need to add increases ‘revaluation’

22. Inflation calculation Tax-free cash of 3 X pension in addition
Example
Inflation calculation
Pension
Banked
TOTAL : £2, pa
Tax-free cash of 3 X pension in addition

23. Defined contribution
From 1 October 2016

24. Defined Contribution section
1%+1%
12% 8% DC
£55K
CRB

25. TAX FREE 55yrs Tax free Defined Contribution flexibilities
At 55 flexibly
Transfer
Future Changes

26. Defined Contribution charges
Administration costs met by employers
Fund management fees subsidised
Fees/subsidy to be confirmed
Subsidy does not apply to any funds transferred-in to the DC fund

27. Other considerations

28. Other considerations
£55K
CPI

29. Transfers-in Membership of ‘transfer club’ to end from 31 March‘16
Transition (2 years)
Based on pensionable salary as at 31 March‘16
Non-club transfers
No more non-club transfers from 1 November‘15 in to final salary section
Submit transfer requests no later than 30 October 2015
1 April‘16 to 1 October‘16 = CRB
1 October‘16 onwards = DC

31. Forthefuture.uss.co.uk