USS FAQs for Cambridge members

These FAQs were updated on 9 March 2018.

Staff who are members of USS will be aware of proposals to change the future benefit structure of the scheme.

The University appreciates the widespread concern that these proposed changes have raised, and will take every opportunity to listen and respond to those concerns. However, it is important to remember that the USS scheme is a collective, national pension arrangement that is subject to government regulation. The University has limited influence on the evolution of the scheme.

This document addresses questions that the Pensions Office has received since the proposals were announced.

If you have a question on USS that you would like answered, email it to pensionsonline@admin.cam.ac.uk. Where appropriate, we will aim to update this FAQ within three working days.

1. How will the USS pension change?

Current structure

USS currently operates a hybrid structure, which provides both defined benefit (DB) and defined contribution (DC) pensions (see below for more information on the difference between DB and DC pensions).

• For employees with a salary of up to £55,550, USS provides a full DB pension under the USS Retirement Income Builder section of the scheme.
• For employees who earn more than £55,550, USS provides a DB pension in respect of salary up to £55,550 under the USS Retirement Income Builder section. Pension contributions on salary above that threshold are paid into an individual pot in the DC section. The DC section is called the USS Investment Builder.

The employee contribution rate is 8 per cent of total salary, but all employees have the option to pay in additional contributions on a DC basis.

The employer contribution rate is 18 per cent of total salary. However, in addition to paying for the cost of the Retirement Income Builder and employer contributions into the USS Investment Builder for those earning above the salary threshold, the 18 per cent employer contribution also covers:

• The cost of providing death and incapacity benefits
• Administration expenses
• An investment subsidy on funds provided via the DC section
• Additional payments towards the scheme’s deficit.

Proposed changes

The proposal put forward by UUK and agreed at the USS Joint Negotiating Committee is as follows:

• The salary threshold for defined benefit pensions is reduced to zero. This would make USS a purely DC scheme
• The DB section would not be closed but the contribution threshold would be set to zero, enabling the DB structure to be reintroduced at some point in the future
• Employers would still pay in 18 per cent of salary. 13.25 per cent would be added to the employee’s pension pot in the USS Investment Builder, and the remaining 4.75 per cent would go towards providing death and incapacity benefits, administration expenses, the investment subsidy and reducing the scheme’s deficit. The amount employers would pay towards reducing the deficit has not been finalised, and changes to this could affect the amount employers pay into employee pension pots (the final figure may be more or less than 13.25 per cent)
• The standard employee contribution would remain at 8 per cent of salary, but there would be an additional option available to staff to pay in at a reduced rate of 4 per cent
• Death and incapacity benefits to remain as they are
• Investment charges for funds provided via the USS Investment Builder to be subsidised by employers.

2. Would I receive a poorer pension under the new arrangements?

It is likely that your retirement income will be lower, with modelling by UUK suggesting that “current members should continue to receive incomes equivalent to 80-90 per cent of those that would, hypothetically, have been received under current benefits.”

DB and DC benefits are quite distinct. A DB scheme provides a guaranteed income in retirement. Under a DC scheme, employees do not receive a guaranteed income, but instead contribute to an investment pot made up of one or more funds.

Over the long term, the amount invested grows through employee and employer contributions, as well as through investment returns – although, like any other stockmarket-based investment, the overall value is susceptible to short-term fluctuations.

In a DC scheme, the risk of receiving an adequate pension lies with the employee. If the underlying investments do not grow as forecast, the employee will have less money than anticipated in their pension pot at retirement.

In a DB scheme, the risk lies with the employer (or in the case of USS, employers). Even if the scheme’s investments do not grow as forecast, employees must still be paid the level of guaranteed income that they have earned.

However, DC pension schemes are more flexible than DB schemes, and allow employees to choose what to do with their money on retirement. They could use it to purchase an annuity (a guaranteed income), take as a lump sum, or withdraw amounts periodically – or potentially a combination of these options.

UUK’s proposal would also allow members to pay in 4 per cent of their salary – rather than 8 per cent – and still benefit from the 13.25 per cent contribution from employers. This may be attractive to those on lower incomes who struggle to pay the 8 percent contribution or have opted out completely because they cannot afford to pay it.

Finally, it is important to note that pension benefits accrued to date are protected by workplace pensions law. Changes to USS benefits would only come into force if and when this proposal were implemented. Any changes to the current arrangements that are decided after the consultation process is completed (described below) are expected to be implemented in the spring of 2019 at the earliest.

3. Why are these changes being made?

The Pensions Regulator requires defined benefit pension schemes to undertake three-yearly actuarial valuations. The main purpose of these triennial valuations is to ensure that the contributions paid into DB schemes are sufficient to provide a high level of security for members’ benefits. The triennial valuation is subject to detailed regulations and the Pensions Regulator can intervene if the approach taken is deemed by the regulator not to be sufficiently prudent.

The USS valuation involves the trustee working closely with scheme actuary to produce figures that show the value of the liabilities and the value of the assets. If the assessed value of the liabilities is greater than the value of the assets, the scheme has a deficit.

The 2017 valuation of USS showed that the scheme has a substantial deficit of £7.5bn. Based on the trustee’s assumptions, the shared cost between employers and employees of providing current benefits would require total contributions to the scheme to rise to at least 37 per cent of salary from 26 per cent. This is unaffordable for many universities and potentially unaffordable for employees on lower incomes.

The University and College Union – on behalf of employees – and Universities UK – on behalf of employers – spent much of 2017 negotiating with the scheme trustee on proposals for benefit reform via the USS Joint Negotiating Committee.

These negotiations took place against the backdrop of the Pension Regulator’s deadline for completion of the valuation, which is 30 June 2018. UUK and UCU presented different benefit proposals and, at the final JNC meeting on 23 January 2018, the Chair of the JNC used his casting vote in favour of the UUK proposal.

4. What is the University’s position?

USS is a multi-employer scheme and Cambridge is just one member out of more than 350 institutions. The University submitted its views to UUK as part of an employer consultation that UUK conducted to inform its negotiating position. The University’s submission can be read here. In its submission, the University refers to the risk it faces as part of the ‘last man standing’ structure of USS. This means that if an employer in USS fails and cannot afford to meet the cost of its ‘share’ of the USS liabilities, it falls to the remaining employers to meet these liabilities. The potential risk to a small number of USS employers, including Cambridge, is significant in the event of a number of USS employers failing at a time of high deficit recovery contributions. The University therefore needs to have regard to the affordability of USS for the whole sector.

In a public statement on 7 March 2018, the Vice-Chancellor said that he would ask Council to accept additional risk and cost while a longer term and sustainable solution to USS can be found. The University will explore all possible options with respect to the future pensions of its staff, and is committed to providing the best possible reward packages it can.

5. What is the likelihood of the consultations the University is undertaking resulting in a different position that could meaningfully effect the outcome of negotiations given the Pension Regulator’s deadline of 30 June 2018?

It is not possible to pre-empt the outcome of the member consultation. UUK is required to consider all feedback received during the consultation before finalising its proposal. Members should also note that talks between UUK and UCU have restarted, mediated by Acas, and that a new proposal may be brought forward.

6: I have read that there is some dispute about the basis for the revaluation that modelled the deficit at £7.1bn. Is the University prepared to put pressure on UUK to release the basis of their calculations so that individual employees might scrutinise the competing claims of the union and UUK?

The current deficit is just over £6bn. While the valuation is a detailed process, the University agrees that it should be possible to understand the basis of the calculation of all figures released by USS and UUK. The University has joined a number of other universities in calling for an expert academic group to look at the current valuation. 

7. Could the University comment on the proposition that risk is better borne by individual employees than collectively by more than 350 institutions? As a leader in the sector, does the University not feel some responsibility for sharing in the collective health of the sector?

The University recognises that UUK’s proposal would mean a transfer of risk from employers to employees, at least until the next full valuation of USS. In his latest public statement, the Vice-Chancellor said that he will ask the University Council to accept greater risk and cost in the short term while a sustainable, long-term solution is found. There are a number of alternative risk-sharing models that could be explored. The University has drawn attention to its own pension scheme for assistant staff, where members build up a defined benefit pension and a defined contribution pension. It has also said it would be willing to see further consideration given to a collective defined contribution scheme and a government-backed solution that would enable the current benefit structure to be maintained.

8. What happens next?

The University recently held an open meeting for all USS members.

Universities who are participating employers in USS will run a full consultation with affected employees. This will last for at least 60 days and is scheduled to start shortly. All members of USS at the University will receive direct access to the consultation document and written information on how to take part. The JNC may decide to change its proposals based on feedback from the employee consultation.

As part of the employee consultation, the University will run a number of roadshows. Further information on these will be communicated shortly.

9. Useful links

On UUK’s proposed changes: https://www.staff.admin.cam.ac.uk/system/files/download/statement_on_benefit_reform_for_employees.pdf

UUK background information to the 2017/18 valuation: http://www.universitiesuk.ac.uk/policy-and-analysis/Pages/pensions.aspx

University of Cambridge statement on the USS valuation, including links to UCU information: https://www.staff.admin.cam.ac.uk/general-news/uss-pension-valuation

USS Retirement Income Builder: https://www.uss.co.uk/members/members-home/the-uss-scheme/uss-retirement-income-builder

USS Investment Builder: https://www.uss.co.uk/members/members-home/the-uss-scheme/uss-investment-builder

Information on types of pension schemes: https://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics