Consultation on University Superannuation Scheme negotiating strategy Pensions Officer Bristol 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 Teachers 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 schemes 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 DesignAccrualLump sumRe-valuation rate Re-valuation caps* Cost sharing* USS pre-2011 Final salary 1/803x pension (~1/65) CPI ** (~ 0.8% < RPI) 50:50 > 5-10% 100:0 > 10% Yes 65:35 USS CRB (CARE) CRB1/803x pension (~1/65) CPI (~ 0.8% < RPI) 50:50 > 5-10% 100:0 > 10% Yes 65:35 TPSCRB1/57NoneCPI + 1.6% (~ 0.8% > RPI) UncappedNone * Ratios are employer:member ** Revaluation and caps for pensions in payment/deferred only - as CRB 7

8

LowerUpperContribution Rate in Difference from 6.5% of CRB USS members Below£14,9996.4%-0.1% £15,000£25,9997.0%0.5% £26,000£31,9998.2%1.7% £32,000£39,9999.4%2.9% £40,000£44,9999.8%3.3% £45,000£74, %5.1% £75,000£99, %5.2% £100,000£150, %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 BenefitCost*Value for money ** Protections USS final salary1 st 2 nd 1 st (2.93)Death in Service, Redundancy (>55) USS CRB3 rd 1 st 2 nd (2.85)Death in Service, Redundancy (>55) TPS2 nd 3 rd 3 rd (2.22) DesignAccrualLump sumRe-valuation rate Re-valuation caps Cost sharing USS pre-2011 Final salary 1/803x pension (~1/65) CPI (~ 0.8% < RPI) 50:50 > 5-10% 100:0 > 10% Yes 65:35 USS CRBCRB (CARE) 1/803x pension (~1/65) CPI (~ 0.8% < RPI) 50:50 > 5-10% 100:0 > 10% Yes 65:35 TPSCRB1/57NoneCPI + 1.6% (~ 0.8% > RPI) UncappedNone ** Factors-in contributions. Higher means better, on average, value for money (per unit member contribution) * Cost to member: 1 st = 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