Download - Consultation on University Superannuation Scheme negotiating strategy Pensions Officer Bristol LA
Consultation on University Superannuation Scheme
negotiating strategy
Pensions OfficerBristol LA
Changes in October 2011
• Existing USS members at 1 October 2011:– Increase in Normal Pension Age to 65 (except if age > 55 on 1/10/11)– With future increases linked to State Pension Age– Contribution rate up from 6.35% to 7.5%– Inflation cap for future accrual of pensions in payment/deferred
• New members and re-joiners after > 30 months:– Inferior CRB (CARE) pension (de-risked, cheaper for employers)– Contribution rate 6.5%
• All USS members– Cost sharing 65:35 if contribution rate forced up in future Flexible retirement scheme – optional part-retired from age > 55– Loss of redundancy protection (ERFC) for those age > 55
Note: Employers contribution left at 16%, probable aspiration to reduce.
2
Dispute and negotiating history
• October 2011 – changes imposed• February 2012 – dispute suspended
– Negotiations to focus on comparability with other public sector schemes (especially Teacher’s Pension Scheme – TPS – in pre-92)
– Redundancy protection (12 month extension and further joint review)
• June 2012 – Congress votes return to work-to-contract• July 2012 – Redundancy protection to Oct 2014 ‘banked’• September 2012 – Special Conference votes to re-suspend
action and resume talks
3
Negotiating environment (early 2012)
• 92% funded (2011 triennial)• Recovery plan
• Employers continue to pay 16% contribution for 6 years:3.4% above what is needed to meet cost of accruals
• Then 4 years at 2% above estimated cost of accruals at that point• Estimated return on investments adjusted up by 0.51% to 6.61%
• Government finalising proposals for public sector pensions• TPS and other settlements less draconian than that imposed on USS.
Employer rate (16%)
Estimated employer rate required to fund accruing liabilities (post CRB)
BUFFER
4
Negotiating environment (now)
• 81% funded (77% when action was re-suspended in Sept)• ‘Unintended’ consequences of stricter regulation and QE *• TPS changes ~final, actuarial work done – clearly better benefit!• Pressure on employers: sector anomaly, recruitment & retention• So not ‘dire’, but smaller buffer and employers are scared of
‘deficit’ and being asked for higher contributions at 2014 triennial
Employer rate (16%)
* Notional liabilities increased, but the scheme’s actual assets have improved and the cost of providing the pension promises has not changed. The 23% ‘deficit’ is the result of stricter methods in how pensions have to be accounted for - and if gilts where averaged over 20 years there would be no problem or underfunding.
5
Consultation - what are your priorities?
1) Improvements to USS CRB section (already 239 in Bristol ~ 10%):• Broad comparability with TPS including
– Better accrual rate– Better revaluation cap– Removal of inflation cap
2) Protection of favourable aspects of USS• Indefinite protection for final salary section• Desirable features of USS vs TPS
– Lump sum– Death in service benefits– Redundancy protection– Lower contribution rates than TPS
3) Are you willing, if necessary, to pay additional contribution rates in order to secure improved benefits?
6
Scheme designs
Design Accrual Lump sum Re-valuation rate
Re-valuationcaps*
Cost sharing*
USSpre-2011
Final salary
1/80 3x pension(~1/65)
CPI **(~ 0.8% < RPI)
50:50 > 5-10%100:0 > 10%
Yes65:35
USS CRB(CARE)
CRB 1/80 3x pension(~1/65)
CPI(~ 0.8% < RPI)
50:50 > 5-10%100:0 > 10%
Yes65:35
TPS CRB 1/57 None CPI + 1.6%(~ 0.8% > RPI)
Uncapped None
* Ratios are employer:member ** Revaluation and caps for pensions in payment/deferred only - as CRB
7
8
Lower Upper ContributionRate in 2013-14
Difference from 6.5% ofCRB USS members
Below £14,999 6.4% -0.1%
£15,000 £25,999 7.0% 0.5%
£26,000 £31,999 8.2% 1.7%
£32,000 £39,999 9.4% 2.9%
£40,000 £44,999 9.8% 3.3%
£45,000 £74,999 11.6% 5.1%
£75,000 £99,999 11.7% 5.2%
£100,000 £150,999 12.4% 5.9%
TPS: Post 92 contributions against USS 6.5% for CRB members
Contributions
• Final salary – 7.5% (+ employer 16% = 23.5%)• USS CRB – 6.5% (+ employer 16% = 22.5%)• TPS – 6.4% to 12.4% (“unfunded”)
9
a = 20 years b = 30 years
10
a = 20 years b = 30 years
11
12
Overall picture
Benefit Cost* Value for money **
Protections
USS final salary 1st 2nd 1st (2.93) Death in Service, Redundancy (>55)
USS CRB 3rd 1st 2nd (2.85) Death in Service, Redundancy (>55)
TPS 2nd 3rd 3rd (2.22)
Design Accrual Lump sum Re-valuation rate
Re-valuationcaps
Cost sharing
USSpre-2011
Final salary
1/80 3x pension(~1/65)
CPI(~ 0.8% < RPI)
50:50 > 5-10%100:0 > 10%
Yes65:35
USS CRB CRB (CARE)
1/80 3x pension(~1/65)
CPI(~ 0.8% < RPI)
50:50 > 5-10%100:0 > 10%
Yes65:35
TPS CRB 1/57 None CPI + 1.6%(~ 0.8% > RPI)
Uncapped None
** Factors-in contributions. Higher means better, on average, value for money (per unit member contribution)
* Cost to member: 1st = cheapest
13
What are your priorities?• Improve CRB, make it more comparable to TPS? How? **
– Better accrual rate? – Better revaluation rate? – Removal of inflation cap?
• Preserve favourable aspects of existing USS? Which?– Indefinite protection for the final salary section?– Lump sum? * **– Death in service benefit? *– Extend redundancy protection beyond 2014? * **– Lower contribution rates?
• Are you willing if necessary*** to pay additional contributions in order to secure improved benefits? If so:– By all, for all? (likely in the region of 1%-2%) **– Or just for those who benefit? (CRB pay)– Tiered by salary? (more mildly than TPS?) **
*** First explore capacity of USS to absorb, contemplate this only if objectively justified (TPS is ‘over-paying’)
* Probably the easiest to achieve ** Favoured in Branch Officer Meetings
14