Proposed changes to your contributions and benefits

The Joint Negotiating Committee (JNC) has proposed a number of changes to the way you build up future benefits in your USS pension, in order to address the scheme’s funding position as part of the 2020 valuation.

What the JNC’s proposals would change

It might be useful to remind yourself of your current USS benefits, before reviewing these proposals. Your employer will consult with you on these proposals to get your views before anything is decided.

Proposal	Key changes	What this means for you
Salary Threshold Reduced to £40,000 from 1 April 2022	The benefits you build in the Retirement Income Builder will be based on a maximum salary of £40,000, which is lower than the current threshold of £59,883.65.	If your earn above £40,000 from 1 April 2022, you’ll build up a lower USS Retirement Income Builder pension and lump sum than at present. But more of the contributions you and your employer pay will go towards savings in the Investment Builder instead.
The Salary Threshold cap after 1 April 2022	Increases to the Salary Threshold to be capped at 2.5% after 1 April 2022.	Increases in the Salary Threshold are currently reviewed regularly by the JNC. The current cap is 10%. Increases to the Salary Threshold applied after 1 April 2022 will be subject to the 2.5% cap.
The accrual rate in the Retirement Income Builder to decrease to 1/85 of salary from 1 April 2022	The accrual rate is currently 1/75, which means you build up benefits at a rate of 1/75 of your salary each year up to the Salary Threshold.	The reduction in accrual rate would reduce the amount of Retirement Income Builder pension you build up each year. If you earn £40,000 a year, the maximum Retirement Income Builder pension you’d build up in a year would reduce by £62.74 to £470.59. The value of each year’s pension would be revalued up to the point you retire, and would also increase after you retire.
Retirement Income Builder benefits annual increase to be capped after 1 April 2022	A cap of 2.5% on the annual increase in ‘banked’ benefits.	Each year, before and after retirement, your benefits are ‘banked’ and increased in line with Official Pensions, which are linked to CPI inflation to a maximum of 10%. This increase would be capped at 2.5%.
Boost to short-term members’ benefits from 1 April 2022	Deferred benefits to replace benefits valued on the basis of contributions.	If you leave the scheme after less than two years’ membership, you’ll be provided with deferred benefits in the Retirement Income Builder rather than a benefit based solely on your own contributions. On average this will provide a larger deferred benefit.

Changes to your contributions

The changes proposed by the JNC have allowed the trustee board to replace the 11% member contribution rate scheduled for October with a new rate of 9.8%, as the cost of the benefit structure proposed is lower than the cost of providing the current level of benefits. Employer contributions will rise from 21.1% to 21.4% from October too. The trustee board has implemented the lower contribution rate in place of the planned rate in order to avoid members paying significantly higher contributions for six months.

If the proposals are implemented, all of your other benefits will remain the same:

Benefits you’ve already built up will continue to be protected by law.
The USS retirement age will stay the same.
You’ll continue to have life cover and ill health retirement benefits.
Any changes to the Salary Threshold, the accrual rate, and to the cap on increases to pensions before or after retirement will not affect benefits you’ve built up before 1 April 2022.
Salary Sacrifice arrangements will remain unchanged.
The Investment Builder will still be available for any member who wants to make additional contributions.
You’ll still be able to manage your own Investment Builder funds or opt for us to do it for you.
Your retirement options, including flexible retirement and the flexible ways you can take any Investment Builder savings you may have will remain unchanged.

Why the JNC has proposed these changes

These proposals are a result of the 2020 valuation – a financial health check of the scheme’s funding position. It found that, for members to continue building up benefits at current levels, contributions would have to go up substantially. This is because the cost of providing DB pensions – a guaranteed income for life, has become increasingly expensive.

Decisions about scheme changes are the responsibility of the JNC, which is made up of representatives from Universities UK and the University and College Union. The JNC has proposed changes to benefits that mean contributions don’t need to go up as much as they would otherwise have done.

Did you know?

89% of private DB schemes in the UK have closed to new members with 48% no longer offering DB at all.

This means we’re among the 11% of DB schemes still open to new members. In fact, our members account for almost a fifth of the 1,089,000 people in the UK who are still actively paying into private DB schemes.

Next steps

Your employer will consult with you, along with eligible employees and member representatives, to get views on the proposed changes before any final decisions are made or changes carried out. We expect this consultation to begin in early November, and it’s legally required to run for at least 60 days.

In the meantime, the JNC will continue to look at possible flexible options that would allow members to pay lower contributions while remaining within USS.

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Published: 9 September 2021