1. USS Briefing for EGM, Sept 2014 Steve Condliffe and Ricky Tutin Joint Pensions Officers 1

2. 2008 to date 2008 Employer contributions up from 14% to 16% 2010/2011: – Benefit changes, dispute and industrial action – Deficit £2.9 billion (92% funded) – Recovery plan – employer contributions continued at 16% Final salary (FS) scheme protected for existing staff, but: – changes to inflation caps – removal of right to protected pension if redundant 55+ (stops October) – New Career-average Revalued Benefits (CRB) scheme for new entrants – Employee contributions from 6.35% to 7.5% for FS, 6.5% for CRB Leading to a divisive two-tier pension scheme: – Same accrual as FS (1/80 : 1/65), revaluation at CPI – Inferior to TPS (1/57), revaluation at CPI + 1.6% 2

3. USS valuation Projected cost of future benefits (liabilities) compared to existing assets + expected contributions + investment return T = Formal triennial valuations with the Pension Regulator Note: Pensions already in payment are safe and pension benefits already earned (past accrual) are largely safe. 3 Billions March 2011 T March 2012March 2013June 2013 (update) March 2014 T, provisional Assets£32.4bn£33.9bn£38.6bn£37.9bn£39.1bn Liabilities£35.3bn£43.7bn£50.1bn£45.8bn£46.1bn Deficit£2.9bn£9.8bn£11.5bn£7.9bn£7.5bn Funding ratio92%77% 83%85%

4. Components in play Deficit recovery/avoidance – Valuation assumptions – Past service deficit – Future service costs Financial Management plan – Investment risk – Reliance of the scheme on the sector (covenant) – De-risking assumptions (stability of scheme/contributions) 4

5. Proposed changes and ‘hybrid’ Employers keep their contributions within 16%-18% Final salary scheme is closed to new accrual from next year: – Years of service already accrued will no longer be paid at 1/80 per year x £ final salary. – Instead, 1/80 per year x £ salary at time of implementation, increased annually by Consumer Price Index (CPI) All members will be put in the current Career Average (CRB) section with an accrual rate of 1/80, revalued by CPI (capped) Salary that counts towards the CRB pension capped at £40K ‘High earners’ (>£40K) can make contributions above the salary cap into a new Defined Contribution section 5

6. How this would work (fictitious) 2015. Salary £30,000. 6 years FS service. Retires 2019 with 10 years service 6 Salary1/80FS (6/80)2016 CPI 3.1% 2017 CPI 5.2% 2018 CPI 2.2% 2019 CPI 2.7% 2015FS£30,000£375£2250£2320£2440£2494£2561 2016CRB£30,500£381£393£414£423£434 2017CRB£31,000£388£408£417£428 2018CRB£31,500£394£402£413 2019CRB£40,000£514 Pension£4350 Lump£13,050 Under FS: £40,000 *10/80 = £5,000 pa. Lump sum £15,000 £650 pa less (~13% less) and £1,950 lump sum less.

7. How hybrid works 7

8. 8

9. Contribution rate projections Current: Employer = 16%, FS = 7.5%, CRB = 6.5% Blended: 23.4% 9 SchemePast service deficit Future serviceTotalNote Status quo FS indexation CRB for new 10.9% spread over 15 years 26.7% FS 19.1% CRB = 28.5% blended 36.75%With de-risking TPS for all No change to accrued FS indexation 10.9% spread over 15 years 33.0%43.9%With de-risking Hybrid CPI indexation for past service 4.3% spread over 15 years < 21.5%<25.8%Reduced de- risking Ernst & Young. Employer: 16%-18% | 18%-21% | 21%-23%

10. Negotiator guiding principles 10

11. Possible timetable 19 September, Special post-92 Conference on USS 24 September: USS Board of Trustees meet to discuss valuation assumptions & technical provisions for consultation Late Sept – early Oct: University Roadshows 1-20 October: Ballot for industrial action (if necessary) 22 October: New scheme design formally tabled at JNC 24 October: UCU HEC Possible ASOS in Autumn term (assessment / exams) 13 November: JNC expected to agree scheme design 20 November: USS Board ratify proposals Late 2014- Early 2015: USS formal consultation Mar 2015 – Oct 2015: Possible implementation target 11

12. Proposal for ballot and action 12