USS Benefit Proposals Charlie Jeffery, Senior Vice Principal Phil McNaull, Director of Finance

Background The 31 March 2014 triennial valuation of the Universities Superannuation Scheme (USS) estimates that the USS scheme deficit was £13 billion. The USS trustees are required to produce a recovery plan in order to address this substantial scheme deficit over a reasonable period and the plan has to be submitted to the Pensions Regulator by July The Joint Negotiating Committee (JNC) of USS has supported proposals to reform the USS to address the large deficit in the scheme. This decision followed over 12 months of discussions between employers, UCU and USS. The joint proposal will now go out to statutory consultation with affected employees. This is expected to start mid-March. The JNC reform proposals will be considered further by the USS Trustee Board at their meeting in June/July once the employee consultation has been completed. The Trustees must take into account the consultation responses when considering their response to the JNC proposal. The importance of maintaining an attractive benefits package is a view that the employers share with scheme members but this also needs to be affordable and sustainable to both current and future members.

Benefits already accrued The proposed implementation date is 1 April Current Final Salary Members Final salary accruals would cease at 31 March Benefits built up to that date would be protected. Their value would be calculated using service and pensionable salary at 31 March 2016 and from that date onwards the accrued benefit would increase annually in line with CPI. For example Current Career Revalued Benefit (CRB) members For members who are currently in the CRB section of USS there is little change. Benefits built up to 31 March 2016 based on an accrual rate of 1/80 th of salary will continue to be increased in line with CPI as they currently do. Going forward benefits built up on a more advantageous rate of 1/75 th of salary. USS service built up to 31/03/ years Final Salary Benefit to 31/03/2016 to be increased by CPI Pensionable Salary calculated at 31/03/2016£35,000 Secured Annual Pension 20/80 x =£ 8,750 pa Secured Lump Sum3 x Annual Pension£26,250

How does the new scheme work? New Benefits from 1 April 2016 All members will pay 8% employee contribution into the new scheme. All members would build up future defined benefits in a new Career Revalued Benefit (CRB) section based on an accrual rate of 1/75 th of salary. Benefits in the CRB section would be increased annually in line with CPI. For example: YearPensionable Salary Pension earned over the year Plus pension earned so far (assumes 2.5% CPI) Total CRB Pension Benefit 2016£34,2331/75x34233 = £456N/A£456 pa 2017£35,2451/75x35245 = £470 plusYear 2016 £467£938 pa 2018£36,3091/75x36309 = £484 plusYear 2016 £479 + Year 2017 £482£1,445 pa 2019£37,3941/75x37394 = £498 plusYear 2016 £491 + Year 2017 £494 + Year 2018 £496£1,980 pa 2020£37,3941/75x37394 = £498 plusYear 2016 £504 + Year 2017 £506 + Year 2018 £509 + Year 2019 £511£2,528 pa

What about higher earners? Salary Thresholds All members will receive benefits in the CRB section up to £55,000 of pay. Therefore for members who earn below £55,000 in salary all benefits will build up via the CRB scheme, this currently applies to 87% of members at the University of Edinburgh. Members earning above £55,000 In addition to building up CRB benefit to £55,000, members who earn more than this sum will generate additional benefits in a new Defined Contribution (DC) section of the scheme. In this section members will pay 8% of salary above the threshold and employers will pay 12% of salary above the threshold directly into the individual’s DC pot. Additional contribution option All members would have the opportunity to choose to pay in an additional 1% of pensionable pay into a personal DC pot, which would be matched by the employer to build up an additional DC fund.

Contribution rates

Timeline of Next Steps February 16 March March-May June/July Summer April 2016 The USS board of Trustees will meet to consider the proposed changes. Following this meeting UU will formally notify employers that a Statutory Consultation is required as well as setting out detail of the proposed changes. Statutory Consultation with USS members on JNC proposals for reform begins (consultation to run for a minimum of 60 days). Employer HEIs to review all consultation responses received from their affected employees. Consultation responses and any employer feedback considered by the USS Trustee Board. Trustee Board to advise JNC of the consultation response and the JNC to decide upon changes to future benefit arrangements and agree recovery plan. Actuarial valuation and recovery plan submitted to the Pensions Regulator. Reforms, including changes to future benefit arrangements and contribution rate adjustments, implemented.

Available resources A Benefit Estimator can help members to calculate how the proposed changes affect them. This can be found at USS has confirmed that a modelling tool will be available to members by the start of the formal Consultation period which will allow members to login to their own records to obtain a more detailed analysis of how changes will affect them. A FAQ document has been produced for employees and you can find this, along with a summary of the proposals on the University’s Pensions webpage at Shortly before the Consultation period commences all current active and prospective USS members will receive an individual letter which will include personal login details to access the formal Consultation website from where employees can print full details and leave comments about the proposals. All comments will be anonymous and we will collate and feedback comments/concerns to the USS Board of Trustees at the end of consultation period. The University of Edinburgh is not permitted to give advice to individual members with regards to the new proposed benefit structure and how it impacts them. You may however wish to seek independent financial advice and you can find an IFA at:

Questions?