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May, 2015:

My response to the USS consultation

Here is what I wrote.

Denis Nicole.

Things an individual can do to maximise their pension

The new changes to our USS pension are very unattractive. There are, however, several things you can do to improve your position at retirement. Here are the ones of which I am aware:

  • Get into a scheme with better inflation protection. The TPS pension, offered by Post-92 Universities has inflation protection at CPI+1.6%; this roughly keeps up with average pay. Currently (but not for long) USS is in the Public Sector Transfer Arrangements, which allow you to transfer your existing USS pension rights into TPS or, for example, the NHS scheme. As shown in my previous post, this really protects your benefits. The downside is that you will probably have to change jobs. I guess you could, for example, move to Solent.
  • Retire a bit. If you were employed and at least 55 on 1st October 2011, you can retire at 60 without penalty. This is a big deal; if you didn’t meet the age cut-off, your pension would be reduced by about 20% for the rest of your life. The really attractive thing to do is to retire 20% (go to a four-day week and, like me, don’t come in on Fridays) and collect 80% of the pension. If you’ve been here a while, you will find that your overall pay goes up, while you work shorter hours. You continue to accrue pension (at 8/10 rate) and when you finally retire you can collect this and your remaining 20%. An added advantage is that your pension is calculated not on your last year’s pay, but on the best three of your last thirteen years, corrected for inflation. If you’ve been at the top of a scale for a while, your pay has not been keeping up with inflation and you will have a pensionable salary which is more than you have ever earned. An unmissable deal.
  • Pay cash AVCs. The Prudential AVCs give a reasonable return but that’s not the real point. They are a way of deferring and eliminating income tax. Money you pay in is paid before tax. You can later take out 25% of the cash value of your pension tax-free. You can take all the rest out too (there is no longer an annuity obligation) and pay tax only at your post-retirement tax rate. Even better, if you have a retirement pension, the total value of your pot is calculated as twenty times your pension plus all the cash (AVCs and USS lump sum); you can take up to 25% of this entire pot tax-free. This right will be lost for future AVCs after April 2016. You should set up AVCs before collecting any pension; the government doesn’t like to see pension money recycled.
  • Don’t forget the various bits of state pension and any other occupational pensions you may have.
  • You don’t ever have to retire. Keep your job as long as you want, and can do, it.
  • Get married to somebody young. USS will pay them for life after you die. Kids (potentially up to age 23) get paid too.

There are a couple of other important benefits which I hope will not affect you.

  • Ill health retirement. If you think this might affect you, do not resign. It is a complicated matter and you need UCU and USS advice before taking any action. If you have only a small pension, your family will be much better off if you stay employed and die “in service”. Resignation also seriously harms your chances of getting an enhanced pension through ill health retirement.
  • You should fill out the “nomination” form from USS. This will ensure that, in the event of your death, your dependent will get some money right away. If you don’t, there will likely be a delay and they might have to pay probate costs before receiving anything.

Denis Nicole

USS Pension Consultation

The formal USS consultation on the revised pension closes in two days time this Friday. Please take advantage of your opportunity to respond. They don’t make it easy (they wouldn’t, would they); you need your USS member number and your National Insurance Number. You will be able to find your member number on any official USS correspondence, including the invitation to respond, or you can call University extension 22445 and ask. You then go to this web page ( and sign in. Realistically, comments at this formal stage can only affect details of the proposed scheme; we have already reached (reluctant) agreement about the core of the changes.

I’d caution you about using the various benefit calculators; I have seen three (UCU, UCEA, USS) and they all make different fragile assumptions.

The hard core of what has been imposed on us is the  inadequate inflation protection. They call it USS inflation and it is slightly worse than CPI (with restrictions above 5%). The graph below should explain the problem. It’s based on ONS figures and only goes back to 1989, as that’s the first date of official CPI numbers.
USS_inflationClick on it if you need a bigger version.

You can see the problem at a glance. If we had no career advancement and no annual increments, we would expect our pay to rise at the same rate as average annual pay in the UK. Thus even without annual increments or promotion, we would expect the 1/80th of a £20,000 salary that we earned in 1989 to be worth £650 if it were based on final salary, as average pay has multiplied by a factor of 2.6 over the period. In contrast, USS inflation (capped CPI) has only multiplied by a factor of 1.88 over the period, so even with the improved 1/75 accrual rate, you only get a pension of £501 twenty-five years later. You lose even without taking account of career progression. The teachers, in TPS, have negotiated inflation protection of CPI+1.6%; this roughly keeps up with average pay.

Why did the teachers get a better deal? Perhaps because of greater Union strength and militancy. The sad reality is that our scheme is supposed to be fully funded; there is meant to be enough money in it to pay our pensions. That allows the government pensions regulator, the USS staff, and the USS trustees (typically from the banking and government sectors) to impose very conservative actuarial assumption to force down benefits. They have even adopted de-risking which is banking-talk for deliberately selecting worse-performing investments which make the deficit bigger. And they have imposed a defined contribution section because, in their language, it is risk-free. It’s risk-free because we take all the risk. The teacher’s scheme, on the other hand, has no money at all, so they don’t have any actuarial rules to follow.

So what can you usefully say in your response? Feel free to rehearse the sad story above, but I doubt you’ll get far. I would concentrate on the defined contribution component, and address a couple of key issues:

  • The new USS is a very complex hybrid scheme. There is legacy final salary, legacy added years AVC, Prudential AVC, CRB, DB (with optional extra matched and unmatched contributions) and possibly a further cash purchase AVC option. This all gives the scheme staff an opportunity to spend money and impose fees. Insist that the fees on the DB parts of the scheme be kept low, well below the current 0.84% average as we are a very big scheme which should be very efficient.
  • All the risk in the DB part is carried by us, the members. So we (not the trustees) should be able to select the range of investment vehicles on offer. A member-led panel should be created for the purpose. We are likely to want various sorts of ethical and low-fees funds.

Here are some other suggested responses:

Denis Nicole