1. Universities Superannuation Scheme Employer Consultation
University of Kent
A presentation by Jackie Holmes – Towers Watson
April 2015

2. Important
This presentation is to provide you with general information to help you better understand the proposed changes
The proposals are only that – nothing has been decided
Your employer wants to hear your views
Neither your employer nor Towers Watson can provide you with specific financial advice
As and when the proposed changes are confirmed, you may wish to speak to a local impartial Financial Adviser (IFA) – further information will be provided later in the presentation

3. What we will cover today
Background to the proposed changes
Brief reminder of the current sections of the USS
Brief overview of the proposed changes
Considerations for a defined contribution (DC) section
What the proposed changes might mean for you
Financial advice
Further information and proposed timings of next steps
Questions

4. Context – what are other employers/schemes doing?
Towers Watson FTSE 350 survey (2015) - 66% of FTSE 250 employers now offer a DC pension arrangement to all their employees
Survey indicated that the average total pension contribution percentage for FTSE 250 employers - core and matching contributions – was 14.2%
Teachers’ Pension Scheme - career average basis from April (if more than 13.5 years away from NPA on 1 April 2012)
Member pension contributions salary-related and range from 6.4% to 12.4%
Local Government Pension Scheme has been providing benefits on a career average basis since April 2014.
Member pension contributions salary-related and range from 5.5% to 12.5%
One in four FTSE 350 employers offer a maximum employer contribution of 10%-11%

5. USS – Why are changes being proposed?
31 March 2011 valuation - USS liabilities exceeded assets by £2.9 bn
June deficit had increased to £7.9 bn (£11.5 bn in March 2013)
March 2014 valuation indicative results – deficit £13 bn
Global economic challenges persist/life expectancy continues to improve
Trustees concerned deficit will grow further
Recovery plan to be submitted to the Pensions Regulator by July 2015
Propose to reduce the investment risk - will reduce returns and potentially increase deficit significantly
Employee and employer pension contributions would have to rise to an unacceptable level
As a result the Trustees prompted a review of USS benefits

6. What are the proposed changes?
FS section and existing CRB section will close for future service from 1 April 2016
Existing and new members join the new CRB section for future service based on an accrual rate of 1/75 of actual Pensionable Salary
Accrued Final Salary and CRB benefits retained and revalued each year
CRB section Salary Threshold initially £55,000 pa
The member contribution rate will be 8.0% (currently 7.5% for FS, 6.5% for CRB)
Members can pay additional (employer matched) contributions of up to 1% to a new DC Section
No CRB on Pensionable Salary above the Salary Threshold. Instead employer contributions of 12% of Pensionable Salary in excess of the Salary Threshold will be paid to the new DC section
Death in Service and Ill Health benefits will operate in the same way as current CRB benefits
Employer contribution increasing from 16% to 18%

7. Final Salary section - overview
Pension: Final
Pensionable Salary x 1/80 x pensionable service +
Tax Free
Cash
3 x pension*
*subject to any Lifetime Allowance restriction
Benefits are based on your Final Pensionable Salary when you retire/leave the section, which is calculated as your:
Highest revalued annual salary during the last three years or
Your highest revalued salary averaged across any three consecutive years over the last thirteen years
Member contribution: 7.5% of Pensionable Salary

8. Current CRB section – an overview=
Pension each year:
Pensionable Salary x 1/80
(Revalued to retirement)
Tax Free
Cash
3 x pension* +
*subject to any Lifetime Allowance restriction
Member contribution: 6.5% of Pensionable Salary

9. How the CRB works CRB Year 3 Inflation CRB Year 2 Inflation CRB Year 1

10. Proposed new Career Revalued Benefits (CRB) section
Pension each year:
Pensionable Salary x 1/75
(Revalued to retirement) +
Tax Free
Cash =
3 x pension*
*subject to any Lifetime Allowance restriction
Benefits are calculated every year based on your Pensionable Salary (basic salary), capped at £55,000 (salary threshold)#
Your pension benefits calculated each year are then increased for inflation (CPI) up to retirement
Your pension cannot decrease during periods of negative inflation and the maximum increase is capped
Member contribution: 8.0% of Pensionable Salary
#Members in part-time employment will receive benefits based on actual salary up to the threshold, not full-time equivalent

11. How might I increase my pension benefits?
A new Defined Contribution (DC) section is being introduced
You will be able to increase your pension benefits by paying additional pension contributions that will be matched by your employer:
These are contributions in excess of the core member contribution of 8.0% of Pensionable Salary for the new CRB section
Additional (unmatched) contributions can be paid by members, subject to the restrictions of the Annual Allowance (£40,000 for 2015/16)
Employee (% of Pensionable Salary)
Employer matching (% of Pensionable Salary)
1.0%

12. Additional Voluntary Contributions
Money Purchase AVCs
Managed by Prudential on a money purchase basis
Fund at retirement depends on AVCs paid, investment return and charges
Added Years/Revalued Benefits AVCs
Buy additional pension and lump sum in USS
Existing Added Years/Revalued Benefits AVCs will be calculated at the Implementation date and then increased in line with official pensions, subject to the cap
For members paying regular instalment Added Years/Revalued Benefits AVCs immediately prior to implementation date, it is intended that they will have a one-off option to continue paying regular AVCs to complete the purchase of additional benefits
AVCs post implementation date
There will be a new arrangement put in place, which will replace the existing arrangements – no details of provider or funds to be offered available as yet

13. Transfers-in
Ending of final salary link will apply to transferred-in service
Transfers in based on pensionable salary immediately prior to implementation date – then increases in line with official pensions
Withdrawal from Public Sector Transfer Club
Transitional arrangement
For those who joined after 1 April 2014 but before 1 April 2016
Transfer in from scheme in Public Sector Transfer club on current terms - benefits under USS based on pensionable salary at implementation date
Otherwise, no new transfers to final salary section after implementation date
Transfers accepted by USS prior to implementation date will be completed
No new transfers to CRB section after implementation date FS
CRB

14. Proposals – Salary above the Salary Threshold
Members will not earn any Career Revalued Benefits on Pensionable Salary above the Salary Threshold of £55,000 pa
Instead - employer contributions to the DC Section on Pensionable Salary in excess of the Salary Threshold:
Employee (% of Pensionable Salary, above Salary Threshold)
Employer (% of Pensionable Salary, above Salary Threshold)
8.0%
12%

15. Provider/fund choices yet to be announced
How a DC Section works
Contributions paid by you and the employer are invested in the DC Section
The bigger the fund, the better the benefits
Tax Free
Cash + +
Money goes in
Fund performance
Annual Income
Family Benefits
Provider/fund choices yet to be announced

16. Defined Contribution (DC) Investment choices
Your investment choices should reflect your personal circumstances, including attitude to investment risk and length of time to retirement
It is likely there will be a choice of funds allowing you to invest in a range of asset classes
There will be a default fund for those who are unwilling/unable to make a choice

17. £ Options for drawing defined contribution funds DC Pension Account
Up to 25% tax free lump sum
Full cash withdrawal at marginal tax rate
Annuity
Drawdown
Impaired/
Enhanced
Standard
Cash
Secured Income
Variable Income
Transfer to another DC product
Available at any time
from age 55 onwards
Don’ forgot about any Prudential AVC funds

18. Pension options from DC funds
Traditional annuity income
Level annuity
Increasing annuity
‘New look’ pension income from DC fund
State Pension Age
Lower income needs
Long term care

19. Death in service and ill-health benefits
Death in service survivor benefits and ill health benefits will operate in the same way as for current CRB structure of benefits
Will reflect the improved 1/75th pension accrual rate and be based on total salary (ignoring the Salary Threshold)
DC fund arising from ‘standard’ employer and employee contributions and 1% employer matching contribution would be absorbed into USS and used towards the cost of providing death in service survivor or ill- health benefits
DC fund arising from additional contributions and transfers-in payable in addition to survivor or ill-health benefits

20. USS Benefit Modeller Figures in ‘today’s terms’ Modeller assumes:
Fixed inflation of 2.5%
Retirement Age 65 (range 55 to 75)
Future pensionable salary increases of 2.5% per year (range 0% to 7.0%, ability to input future promotional increases up to 10%)
No extra contributions (range 0% to 15.0%)
DC investment returns of 5% per year (range 0% to 7.5%)

21. FS member example - Pensionable salary £30,000 (1 April 2016)
Change
FS member example - Pensionable salary £30,000 (1 April 2016)
Member aged 46
Future salary increases 2.5% pa
Investment return 5.0% pa
21 years pensionable service
Retirement age 65
Additional contribution 1%
CRB contribution (8.0%): £ gross a month
Additional employee contribution (1.0%): £25.00 gross a month
Total member contribution £ a month
Basic rate tax relief (20%) on contribution is £45.00 a month
Net cost: £ a month

22. FS member - salary £30,000 no additional contribution

23. USS Benefit Modeller FS member Pensionable Salary £30,000 (1 April 2016) 1% additional contribution

24. FS member example – Pensionable salary £70,000 (1 April 2016)
Change
FS member example – Pensionable salary £70,000 (1 April 2016)
Member aged 46
Future salary increases 2.5% pa
Investment return 5.0% pa
21 years pensionable service
Retirement age 65
Additional contribution 1%
CRB contribution (8.0%) of £55,000 = £367 gross a month
Additional DC contribution (1%) of full salary = £58 gross a month
DC contribution (8.0%) of salary over threshold = £100 gross a month
Total contribution of £525 gross a month
Higher rate tax relief (40%) on contribution is £210 a month
Net cost: £315 a month

25. FS member example - salary £70,000
Change
FS member example - salary £70,000

26. Change
USS Benefit Modeller FS member Pensionable Salary £70,000 (1 April 2016) 1% additional contribution

27. CRB member examples – assumptions
Change
CRB member examples – assumptions
Member aged 46
Future salary increases 2.5% pa
Investment return 5.0% pa
3 years’ pensionable service
Retirement age 65
Additional contribution 1%

28. USS Benefit Modeller CRB member Pensionable Salary £30,000 (1 April 2016)

29. USS Benefit Modeller CRB member Pensionable Salary £70,000 (1 April 2016)

30. Further information USS Consultation website:
Consultation meetings/ staff representatives:
Have your say!
USS Career Revalued Benefits section (current) guide:
Consultation glossary:

31. Where do I go if I need financial advice?
Vital to get an adviser you can trust
Personal recommendation best
Impartiality essential
Transparency of costs
Area of expertise – knowledge of USS
For a better understanding how an adviser might help:
If you are ready to search for an adviser, visit

32. Timing of next steps Change
Trustee considers consultation responses and refers any suggested modifications to the JNC
Proposed implementation of changes (earliest)
Consultation start date
16 March 2015
June/July 2015
1 April 2016
May 2015
Consultation meeting University of Kent
22 May 2015
Planned Consultation end date
Autumn 2015
Any agreed changes will be communicated
towerswatson.com

33. Any questions?
The University Pensions Department are also happy for you to refer to them any personal questions relating to pensions:
Tarnia Craswell:
Alan Gazzard:
towerswatson.com

34. Limitation of reliance
This presentation is provided to employees of University of Kent who are members of the Universities Superannuation Scheme solely for their use. It may not be suitable for use in any other context and we accept no responsibility for any such use whether by the members or by any other party. It has been prepared for general purposes only and does not purport to be and is not a substitute for specific professional advice to individual members. As such it should not be relied upon by individual members for individual investment or other financial decisions and those persons should take their own professional advice on such investments or financial decisions. The contents are based on information available to Towers Watson at the date of the presentation, and takes no account of subsequent developments after that date. This presentation may not be provided or its contents disclosed by any person to any other party without Towers Watson’s prior written permission. In the absence of our express written permission to the contrary, Towers Watson accepts no responsibility for any consequences arising from any third party relying on the contents of this presentation or the opinions expressed therein.
Taxation
Towers Watson Limited is a firm of Actuaries and Employee Benefits Consultants. Where the advice we provide has taxation implications, we rely on our clients obtaining definitive advice on such issues from their accountants and/or legal advisers.
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