1. Revaluation of USS Pension Scheme – Staff Briefing October 2014 Richard Benson, John Garnham Improving health worldwidewww.lshtm.ac.uk

2. USS – overview of the scheme USS is one of the largest pension schemes in the UK with 300,000 members and around £40bn of assets Established in 1974 as the national pension scheme for HE Mutual or “last man standing” scheme with 390 employers – HE institutions, FE colleges, learned societies and others USS is an independent company governed by a board of trustees, including: 4 members appointed by Universities UK 3 members appointed by UCU 3-5 independents appointed by the board Proposals to change the rules of the scheme will be considered by the Joint Negotiating Committee of 11 members: 5 appointed by Universities UK 5 appointed by UCU 1 independent, who acts as chair

3. USS – overview of the scheme USS is a defined benefit scheme with two sections: Final salary section Open to existing members Employer – pays 16% of salary Individual – pays 7.5% of salary Benefits Pension = final pensionable salary x 1/80 x pensionable service Tax-free cash = 3 x pension Contributions + Career revalued benefits section Open to members joining after Oct 2011 Employer – pays 16% of salary Individual – pays 6.5% of salary Benefits Pension = average pensionable salary x 1/80 x pensionable service Tax-free cash = 3 x pension Contributions +

4. USS – revaluation Pensions’ legislation requires all defined benefit schemes to conduct an actuarial valuation every 3 years The valuation will assess the present value of the assets and liabilities of USS, including: Will contain a large number of assumptions of how these factors and other may change over time Small changes in assumptions can have a big impact on the size of the deficit USS trustees will need to agree a Financial Management Plan with the Pensions Regulator to eliminate the deficit over a period of years The Regulator will be looking at: are the assumptions reasonable? are employers able and willing to take the steps needed to reduce the deficit? sustainability, including a new objective “to minimise any adverse impact on the sustainable growth of an employer”. average age of the active membership expected investment returns contributions from employers and employees expected increases in pensionable salaries

5. USS engagement paper on scheme funding, January 2014

7. Benefit Changes Options?

9. Benefit Changes Options?

13. UUK Proposal for JNC – illustration of the proposed hybrid model A member of staff is currently in the final salary section of USS. They have a salary of £40K and 20 years pensionable service at the transition date in 2016. The member of staff continues to work for a further 15 years after the transition date and retires in 2031 on a salary of £57K. If the current final salary scheme were to continue with no changes Pension entitlement at retirement would be: 35/80 x £54K= ~£25K pension = ~£75K lump sum If the proposed hybrid scheme were to be implemented Pension entitlement at retirement would be: accrued benefits at transition date= 20/80 x £40K = £10K pension inflated annually in line with CPI until retirement = £30K lump sum inflated annually in line with CPI future service benefits = annual pension and lump sum entitlement calculated as 15/80 x average salary 2016-2031 up to the threshold of £50K additional pension benefits accrued through the DC pot on any salary over the threshold of £50K + + This is a simplified example and is only intended to illustrate the way in which the hybrid model might operate. The figures shown here are approximate and will be subject to change, depending on the outcome of negotiations at the JNC and the rules finally agreed by USS. Current material from UCEA indicates that the £50K threshold would also increase each year in line with CPI. For the sake of simplicity, this is not reflected here and would again be subject to negotiation by the JNC and approval by USS