1. Universities Superannuation Scheme (USS) Employer Consultation 2015 Consultation with affected employees on proposed changes to the Universities Superannuation Scheme

2. Overview Why are reforms necessary? substantial deficit within USS Trustees required to formulate a plan to fund the deficit in conjunction with the participating employers USS no longer affordable in its current form need to ensure scheme remains sustainable, attractive and affordable for both current and future members

3. Overview How were the proposed reforms arrived at? employers considered a wide range of options proposals result of agreement by Universities UK and University & College Union (UCU) at USS’ Joint Negotiating Committee proposed changes aim to offer best deal within constraints imposed by Trustees and the Pensions Regulator

4. Overview Summary of proposed changes closure of final salary section all existing benefits calculated on pensionable salary and service up 31 st March 2016 protected (both final salary and CRB) move to new CRB section with improved accrual rate of 1/75 th per year up to a salary threshold of £55K ‘New’ Defined Contribution (DC) section on salary above £55K option for all to pay contributions into DC section and, 1% matched by employers.

5. Overview

6. Some Definitions Defined Contribution (DC) cash contributions from employee and employer goes into an individual’s account, money, generally invested in stock market – final value used to buy an annuity* Defined Benefit (DB) cash contributions from employee and employer goes into the scheme. Pension is then calculated by reference to a formula regardless of current investment conditions Final Salary – earn years/days service in scheme Career Revalued Benefits – earn pension every year/day

7. Some Definitions Scheme Deficit Simply, the difference between the amount of pension promises already built up within the Scheme at a particular point in time (liabilities) and amount the Scheme has available to pay those pensions (assets). Liabilities Assets Deficit

8. Closure of Final Salary Section Proposal final salary section closed for future service benefits up to date of change protected benefits based on pensionable salary at date of change revalued each year in line with CPI from date of closure ~ link to final salary broken ~

9. Closure of current CRB Section Proposal current CRB Section closed for future service benefits up to date of change protected revalued each year in line with CPI from date of closure ~ affected employees move into new CRB scheme ~

10. Revaluing accrued benefits Benefits accrued up 31 st March 2016 will increase in line with the Government’s Official Pension Increase Order subject to the following limitations ~ If inflation negative or zero, no increase (or reduction) ~ Annual increase in official pensions Increase payable by USS 5% or lessIncrease matched by USS and paid in full More than 5% but less than 15% Matched up to 5% plus one half of the increase above 5% More than 15%Increase capped at 10%

11. New Career Revalued Benefits (CRB) Proposal future service benefits would build up in the new CRB section pension of 1/75 th of salary each year plus tax free cash of 3 x pension revalued each year in line with official pensions order (CPI) member contribution rate will be 8%

12. Salary Threshold Proposal CRB benefits for salary up to threshold proposed salary threshold is £55K at 1 st April 2016 means 80% of USS members would receive CRB pension on full salary remaining 20% would receive CRB pension on salary up to £55K and DC benefits on salary above £55K increases each year in line with official pensions ~ threshold is based on actual earnings ~

13. Defined Contribution (DC) Section Proposal contributions on earnings over salary threshold of £55K would be invested in new DC section member contributions of 8% and employer contributions of 12% of salary over threshold would be invested in individual member accounts to provide benefits at retirement all members would have option to contribute an additional percentage of full salary employer will ‘match’ contributions on first 1% of salary

14. Defined Contribution (DC) Section How will it work? assume a salary of £65,000 first £55,000 earns a CRB benefit of £733.33 annual pension plus a tax free cash lump sum of £2,200 contributions on the remaining £10,000 go into the DC section, calculated as: 1. £10,000 x 8% = £800 2. £10,000 x 12% = £1,200 the DC section has a total investment of £2,000 for the year

15. Impact of closure Transfers In end of “transfers-in” for defined benefits, including the ending of USS’ membership of the Public Sector Transfer Club transfers “in progress” will be honoured if agreed before the implementation date and will be based on pensionable service as at 31 st March 2016 post-implementation transfers will go as cash values to members DC pot

16. Impact of closure Added Years AVC’s “one-off” added years bought before the implementation date will be based on pensionable salary as at 31 st March 2016 members with regular instalment (monthly) Added Years AVC will get ‘option’ to continue but will be based on pensionable salary as at 31 st March 2016 ~ same principle applies to DB AVC’s in the CRB section ~

17. Impact of closure Money Purchase AVC’s (Prudential) continuing facility to pay money purchase (DC) AVC’s pre-implementation date funds can be exchanged for defined benefits in the Scheme post-implementation date funds cannot be exchanged for defined benefits in the Scheme

18. Other Provisions Proposal Death in Service & Ill Health Retirement benefits to be enhanced to reflect service as if earnings were unaffected by the ‘cap’ (all CRB) 1. standard DC contributions would therefore be absorbed by the Scheme 2. 1% ‘matching’ contribution absorbed by Scheme 3. voluntary contributions paid back to member/beneficiary

19. Other Provisions Proposal Cost Sharing if more money is required to fund the Scheme and the JNC cannot agree how to fund the Scheme the Trustees reserve the right to 1. reduce or remove the 1% employer matched contribution 2. reduce or remove the 12% employer contribution on DC benefits above the salary threshold 3. impose an increase based on the 65:35 ratio

20. Employer Contributions Proposal employer contribution will increase from 16% to 18% employer contribution to DC section would be 12% of salary over the £55K threshold employer would match additional 1% any member opts to pay to DC section remaining employer contributions go towards paying off the deficit in the scheme

21. Employee Contributions Proposal employee contribution for new CRB section will be 8% employees moving from final salary section to new CRB section will see an increase from 7.5% to 8% employees moving from old CRB section to new CRB section will see an increase from 6.5% to 8% all members will be given the opportunity to pay additional contributions into a DC arrangement additional 1% will be matched by the employer

22. Responding to the Consultation

26. Responding to the Consultation (Benefit Modeller)

28. Responding to the Consultation (Response Form)

29. Further Information www.ussconsultation.co.uk www.gla.ac.uk/usschanges Campus eNews updates from Director of Human Resources specific questions can be submitted to: lynne.cameron@glasgow.ac.uk