We want to make pensions easy to understand. Take a look through the explanations below to help you get to grips with your pension and the terms that come with it.
We also have a specific investment glossary for the investment terms we use.
A
Academic and comparable staff (A&C)
Employed by a USS employer in a role which is an academic or a research post – or in a comparable role in terms of responsibility and/or salary and by reference to the employer’s job-evaluated pay structure.
Active member
A member who is paying in to USS to build benefits and save for their future.
Adjusted Income
Broadly this is your taxable income, plus the Annual Allowance (AA) amount you have used in the tax year, less your pension contributions.
Annual Allowance (AA)
The maximum amount of tax-free pension savings that can be made in a tax year. The standard AA is £60,000. If your savings exceed this amount, a tax charge may be payable which is designed to off-set the tax saving you will have received on your pension contributions.
Annuity
Purchasing an annuity with your defined contribution (DC) savings (like the Investment Builder) means you’ll buy a regular income for life when you retire. The rate received will depend on a number of things, like the amount of money in your DC pot, market conditions, your age and health, whether or not the income will increase once in payment, and whether a pension will be provided to your dependants when you die.
Assets
These are the different types of investments held within USS. Our assets may include company shares, UK government bonds, property, infrastructure and cash. Our assets, and earnings on those assets, are used to pay the benefits due to members.
Asset classes
An asset class is a grouping of investments that have similar characteristics and are subject to the same laws and regulations. Equities (stocks), fixed Income (bonds), cash and cash equivalents, real estate, commodities are examples of asset classes.
B
Benchmark
Our investment benchmark is the hypothetical amount of returns our market assets (such as equities, credit and property) should achieve for us to meet the benefits members have earned – and still be within risk levels agreed to by the employers. The benchmark acts as a guideline for the level of risk our in-house investment team will target in its portfolio. It also shows how well an investment has performed. By investing in more diverse assets, our in-house investment team aim to deliver returns over the benchmark and still target the same (or a lower) level of risk.
C
Cash payments
See UFPLS.
Contributions
The monthly amounts you and your employer pay to USS to build up your benefits and savings for the future.
D
Deferred benefits
These are the benefits you built up before you stopped paying in to USS.
Deferred member
This is a member who's stopped paying in to USS, otherwise known as a leaver.
Watch our short video on What happens when you leave USS, what your options are and how to keep your details up to date.
Defined benefit (DB)
A pension based on how much you earn and how long you've worked for your employer. It means you're guaranteed an income from when you retire until you die. The Retirement Income Builder is a DB pension.
Watch our short video for some pensions basics, including how they work and the benefits of saving for your future.
Defined contribution (DC)
A DC pension arrangement is a savings pot based on how much you (and sometimes your employer) put into it. The money in your pot is invested and the value of your pot can go up or down – it all depends on how your investments perform. Your savings can then be used in a variety of ways when you come to take them. The Investment Builder is a DC arrangement.
Watch our short video for some pensions basics, how they work and the benefits of saving for your future.
Dependant
Someone who, at the time of a member's death, is reliant on the member financially or because they have a physical or mental disability.
Do It For Me Option
An investment option for members with Investment Builder (defined contribution) savings. If you choose this option (or don’t make a choice), we’ll manage your investments for you.
We invest your savings into a mix of funds. As you get closer to your Target Retirement Age, we gradually move your investments from funds with higher potential for growth but higher risk into funds that have less risk but less potential for growth. This aims to protect the value of your savings as you get close to taking them.
Watch our short video on investment choices and any decisions you need to make – like if you want us to look after your investments for you, or if you’d rather manage them yourself.
E
Eligible child
A child who is under 18, or, if they're in full-time education, under 23. It also includes a child who’s not able to support themselves financially due to physical or mental disability.
Emergency tax code
We'll use this for any payment(s) where no P45 is available. This includes cash payments (UFPLS), all dependant pensions, your pension if you previously stopped paying in to USS and your first payment if you've chosen to take flexible retirement.
Enhanced Opt Out
With Enhanced Opt Out (EOO), you stop building up retirement benefits, but keep your life and ill health cover.
Exempt member
A person who was an active member of USS on 30 September 2011 and was aged 55* or over on 1 October 2011. You can access the benefits you've built up from 1 October 2011 at 63.5 (or the contractual pension age at 30 September 2011 if it was lower) – without your benefits being reduced. If you left and re-joined since 30 September 2011 but didn't re-join within six months of leaving, you won’t be an exempt member for your later period of service.
*The government has announced they’ll raise this to age 57 in 2028. Depending on where you are in your retirement journey, this could impact how early you can access your USS benefits.
F
Factor
A factor is a number that we use in our calculations where benefits are being changed in some way, for example to convert pension to lump sum at retirement, or in some early and late retirement calculations.
Flexi-access drawdown
This is one of the flexible ways you can take your defined contribution (DC) savings (like your Investment Builder pot) from age 55*. With drawdown, you can take up to 25% of your pension savings (up to a limit set by HMRC) tax-free upfront. The rest can remain invested and then be taken as income when it suits you. This income may vary depending on investment performance and it isn't guaranteed for life.
*The government has announced they’ll raise this to age 57 in 2028. Depending on where you are in your retirement journey, this could impact how early you can access your USS benefits.
H
HMRC
This is an abbreviation for Her Majesty's Revenue and Customs.
Hybrid pension scheme
There are two different types of workplace pension – a defined benefit (DB) pension (like the Retirement Income Builder), which guarantees you an income for life once you retire, and a defined contribution (DC) pension (like the Investment Builder), where contributions are invested into your own savings pot. A hybrid pension scheme like USS has both.
Watch our short video for some pensions basics, how they work and the benefits of saving for your future.
I
Investment Builder
If you earn above the salary threshold, have made additional contributions, or transferred in from another pension arrangement since October 2016, you’ll have an Investment Builder savings pot – the defined contribution (DC) part of USS. This is a flexible savings pot with tax relief that works alongside your Retirement Income Builder benefits, giving you the best of both worlds.
Here our team of experts invest savings from you and your employer based on your investment choices (or into our default option if you don’t make a choice). These savings, plus any investment returns, build up in your pot. Then, from when you reach age 55*, you can choose when, and how, you want to use these savings, and you don't have to retire to do so.
Watch our short video on what happens when you join the Investment Builder.
*The government has announced they’ll raise this to age 57 in 2028. Depending on where you are in your retirement journey, this could impact how early you can access your USS benefits.
L
Let Me Do It Option
An investment option for members with Investment Builder (defined contribution) savings. This option puts you in control of all your investment decisions, so you’re in charge of keeping track of how your funds are doing.
There are 10 funds for you to choose from and you can invest in one or more of them. They range from lower risk funds with possible lower returns, to higher risk funds, with potential higher returns.
Watch our short video on investment choices and any decisions you need to make – like if you want us to look after your investments for you, or if you’d rather manage them yourself.
Lifetime Allowance (LTA)
Prior to 6 April 2024, the LTA was the limit on the amount you could take from your pension savings during your lifetime before a tax charge was applied. From 6 April 2023, the LTA tax charge was abolished but you may still need to pay some tax depending on how you take your benefits in excess of the LTA. From the 6 April 2024 LTA has been abolished entirely. If you have taken benefits from your pension savings between 6 April 2006 and 5 April 2024, the amount of LTA you have previously used will be tested against the Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA), unless you apply for a Transitional tax-free amount certificate (TTFAC).
Lump Sum Allowance (LSA)
The LSA is the limit on the amount of certain tax-free lumps sums that you will be able to receive from all of your pension arrangements before marginal rate taxation applies. The limit is currently £268,275, but may be higher if you have applied for Lifetime Allowance protection. You will use up some of your available LSA each time you take a Relevant Lump Sum from your pension savings. If you have previously used up any of your Lifetime Allowance (LTA) prior to 6 April 2024, your LSA will be reduced by 25% of the total LTA value you have already used, unless you apply for a Transitional tax-free amount certificate (TTFAC).
Lump Sum and Death Benefit Allowance (LSDBA)
The LSDBA is the limit on the amount of certain tax-free lump sums that can be paid in respect of an individual from all of their pension arrangements before marginal rate taxation applies. The limit is currently £1,073,100 but may be higher if you have applied for Lifetime Allowance protection. Your LSDBA will be used up each time you take PCLS, UFPLS, serious ill health lump sum or lump sum death benefit (except trivial commutation). If you have previously used up any of your Lifetime Allowance (LTA) prior to 6 April 2024, your LSDBA will be reduced by 25% of the total LTA value you have already used (or by 100% of the value used if you have had any benefits paid as a serious ill health lump sum), unless you apply for a Transitional tax-free amount certificate (TTFAC).
M
Marginal tax rate
Your marginal rate is the highest rate of income tax that applies to you based upon the next pound earned, after your total income has been offset against all reliefs and allowances.
The list shows the tax rates you pay in each band if you have a standard Personal Allowance of £12,570. If you live in Scotland the tax rates will be different.
- Earnings up to £12,570 (the standard personal allowance) are not subject to income tax.
- Earnings from £12,571 to £50,270 (the basic rate) are subject to an income tax rate of 20%.
- Earnings from £50,271 to £125,140 (the higher rate) are subject to an income tax rate of 40%.
- Earnings above £125,140 (the additional rate) are subject to an income tax rate of 45%.
So, if your total income were £40,000, your marginal rate would be 20%, as the next pound earned would be below £50,270, so you would remain at the basic rate.
But if your total income were £50,270, your marginal rate would be 40% because the next pound earned would push you into the next tax band.
For more information on tax and personal allowances, visit the HMRC website.
The Match
The Match is one way to make additional contributions to save more – you can choose to pay an additional 1% of your salary every month to the Investment Builder. If you paid The Match between October 2016 and March 2019, you would have received an extra 1% contribution from your employer too. But from 1 April 2019, the employer element of The Match was removed. You can still choose, or may still have, The Match. But your employer will no longer match the 1%.
Minimum pension age
The earliest age that HMRC usually lets an individual take their pension benefits. This is age 55*.
*The government has announced they’ll raise this to age 57 in 2028. Depending on where you are in your retirement journey, this could impact how early you can access your USS benefits.
Money Purchase AVCs (MPAVCs)
Money Purchase AVCs (additional voluntary contributions), or MPAVCs, are a type of additional contribution that ended in October 2019. Members could pay MPAVCs and build up pots in Prudential’s Deposit, Unit Linked and/or With Profits funds. After we launched the Investment Builder, we ended our MPAVC arrangement with Prudential because we believe the Investment Builder offers value and flexibility to members that want to boost their pension savings by making additional contributions. Most members with Prudential pots have now moved their savings into the Investment Builder, where they can continue to make additional contributions.
Money Purchase Annual Allowance (MPAA)
The MPAA applies when you start taking defined contribution savings (like the Investment Builder) in certain ways. The limit is £10,000 per year.
Once triggered, it limits how much you can pay into defined contribution arrangements (like the Investment Builder) before you need to pay tax. It will apply for all future tax years as well as the year in which you triggered it. It’s a HMRC limit designed to stop individuals taking tax-free pension savings out of one scheme and then claiming more tax relief by reinvesting them back into other pension schemes.
N
Normal Pension Age
This is age 66. It's the age at which your Retirement Income Builder benefits (the defined benefit part of USS) become payable in full. If you retire before this age, your benefits may be reduced because they’ll be paid for longer. But if you retire after this age, the benefits you’d earned up to that date may be increased.
The Normal Pension Age will change in the future in line with increases to the State Pension age.
P
Pensioner
A member drawing their benefits from USS.
Q
Qualifying service
This is how long you’ve been a USS member and includes any time you were with a previous pension scheme if you've transferred those benefits to us.
R
Relevant Lump Sum
Is a tax-free lump sum payment payable to you from your pension savings on or after 6 April 2024 and tested against your Lump Sum Allowance (LSA) and your Lump Sum and Death Benefit Allowance (LSDBA). This includes tax-free cash lump sums paid to you at retirement, or any tax-free element of an Uncrystallised Funds Pension Lump Sum (UFPLS) payment.
Relevant Lump Sum Death Benefit
Is a tax-free lump sum payment payable to you or your beneficiaries from your pension savings on or after 6 April 2024 and tested against your Lump Sum and Death Benefit Allowance (LSDBA). This includes tax-free cash sums paid to you in the event of serious ill health, or any tax-free lump sums paid to your beneficiaries following your death (excluding a trivial commutation lump sum death benefit).
Retirement Income Builder
When you become a member of USS, you automatically join the Retirement Income Builder, the defined benefit (DB) part of USS. This will give you a pension – a guaranteed income for life – plus a one-off, tax-free (up to a limit) cash lump sum at retirement.
The benefits you build up in this part of USS are based on your salary up to the salary threshold. If you earn over the salary threshold then you’ll also build a flexible savings pot in the Investment Builder, the defined contribution part. You’ll build savings in this part as well if you transfer other pension savings in or make additional contributions. This means you’ll have a hybrid pension, giving you the best of both worlds.
Watch our short video on how you build benefits in the Retirement Income Builder, or our overview of USS video for more on how the two parts of USS work side by side.
S
Salary
This includes your regular salary and fixed cash allowances. It may also include any salary which fluctuates over time – check with your employer.
Salary sacrifice
If your employer offers salary sacrifice, you can agree to give up the part of your salary that you would pay towards your pension, and your employer will pay your contributions for you. Then, you (and your employer) could pay lower National Insurance contributions.
However, there are reasons why this may not be right for you. For example, if you’re with USS for less than two years, and you use salary sacrifice, you’ll still be able to choose to keep pension benefits in USS or transfer them to another scheme, but you won’t have the option to get a refund of contributions when you leave. It may also affect the amount you’re eligible to borrow, if you’re looking for a mortgage or other finance. You should speak to your employer for more details.
Salary threshold
The salary threshold for 2024/2025 is £70,296. If you earn over this amount, you’ll automatically start paying in to the Investment Builder, the defined contribution (DC) part of USS. The benefits you build in the Retirement Income Builder, the defined benefit (DB) part of USS, are based on your salary up to this threshold.
State Pension age
This is the earliest age you can take your State Pension. This is currently age 66.
T
Tapered Annual Allowance
A Tapered Annual Allowance (AA) is lower than the standard AA and applies to those on a higher income.
Target Retirement Age (TRA)
This is the age you plan to start taking your Investment Builder (defined contribution) savings. Your TRA only applies to any savings you have in the Investment Builder. It doesn’t have to be the same age that you start taking your Retirement Income Builder benefits and you can set or change it whenever you want to in My USS.
If you started saving in the Investment Builder on or after 1 October 2020, and you’ve not set your Target Retirement Age (TRA), it’s automatically set to our Normal Pension Age of 66.
If you started saving in the Investment Builder before 1 October 2020, and you didn’t set a TRA, yours has automatically been set to age 65.
If you’ve set your own TRA, it will stay as it is.
It lets us know when to get in touch about your options as you approach this age. It also allows us to automatically move any investments you have in the Investment Builder to lower risk funds as you get closer to it. We do this for members in the Do It For Me Options, where we manage your investments for you. If you’ve chosen to invest in our self-select funds (the Let Me Do It Option), you’re responsible for reviewing and managing your own investments. But we’ll still send you a letter to remind you of your options around six months before your TRA.
Watch our Target Retirement Age video and find out why it’s important to keep this up to date.
Tax-free cash lump sum
Once you retire, you’ll get an income for life and a one-off, tax-free (up to a limit) cash lump sum of three times your pension. You can choose to have a higher monthly income and a lower cash lump sum – or vice versa. It’s up to you.
And if you have savings in the Investment Builder (defined contribution) too, you can take some or all of these as a cash lump sum or extra pension.
But there’s a limit on the amount of benefits that can be taken as tax-free cash. We’ll tell you this limit when we send you your retirement quote.
Tax relief
With a pension, you get tax relief on the money you pay in, meaning your contributions are tax-free. This is because your contributions are taken from your pay before tax, so you only pay tax on the salary you take home, which doesn’t include your pension contributions.
Threshold income
Broadly this is your taxable income from all sources less your pension contributions. If you've sacrificed any income by taking salary sacrifice on or after 9 July 2015 then add this sacrificed income back on.
The trustee
Universities Superannuation Scheme Limited is the trustee of USS. We (the trustee) make sure USS (the scheme), which is set up for the benefit of our members and their dependants, is run in line with the trust deed and rules and legal duties.
Transitional tax-free amount certificate (TTFAC)
A TTFAC certificate shows the amount of Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA) you have remaining at 6 April 2024. You can apply to any of your pension providers and ask them to prepare a TTFAC for you, provided you have previously used some of your Lifetime Allowance (LTA) between 6 April 2006 and 5 April 2024 and provide your pension provider with complete evidence of the tax-free lump sums you have taken prior to 6 April 2024. HMRC have published guidance for members who are considering this option.
U
Uncrystallised funds pension lump sum (UFPLS)
This is one of the flexible ways you can take your defined contribution (DC) savings (like your Investment Builder pot) from age 55*. With UFPLS you can take several cash payments from your DC savings to suit you. The first 25% of each is usually tax-free (subject to HMRC limits).
We call these cash payments at USS. You can take up to four cash payments each year from your Investment Builder pot (minimum £2,000 each, unless you are taking your entire pot). There is no charge for cash payments with USS.
*The government has announced they’ll raise this to age 57 in 2028. Depending on where you are in your retirement journey, this could impact how early you can access your USS benefits.
USS standard pension increase
Before and after you retire, on 1 April each year, all of the Retirement Income Builder (defined benefit) benefits you’ve built up are increased in line with official pensions, which broadly go up in line with CPI inflation. This provides a level of inflation protection for your benefits.
For benefits built up before October 2011, the annual increase in official pensions is matched in full. So, whether you’re retired or still building your USS pension, if you have benefits that you built up before October 2011, they’ll continue to increase annually in line with official pensions.
The annual increase for benefits built up from 1 October 2011 is capped at 10% (the first 5% matches the increase in official pensions, with half of the excess above 5% matched to a maximum of 10%). So, whether you’re retired or still building your USS pension, any benefits you’ve built up or continue to build up between 1 October 2011 onwards will increase by a maximum of 10% per year.
After you’ve retired, we’ll send you a Pension Increase letter each April to confirm any increases you might receive.
During any periods of deflation, or negative inflation, we won’t reduce the value of your pension, but it won’t increase.
V
Valuation
A valuation looks at the short and long-term financial condition of USS. It must take place at least every three years.
It shows us how much money we have and how much we’re likely to need so we can pay the benefits that have been promised to our members. It also shows us the level of contributions that need to be paid to fund benefits in the future, or whether benefits might need to change in order to keep the contributions from members and employers at the current level.
Our scheme actuary helps us complete the valuation, and then reports to the USS board. After that, we give the valuation report to the Pensions Regulator.
Voluntary Salary Cap
If you’re getting close to your Annual Allowance (AA), Lump Sum Allowance (LSA) or Lump Sum and Death Benefit Allowance (LSDBA) limits and you earn over the salary threshold, you may want to consider a Voluntary Salary Cap (VSC) to help manage the amount of tax you pay on the benefits you build up and on your salary. But if you use VSC, you’ll build fewer USS benefits. Find out further information in relation to the VSC.
Further information can be found on our key terms and important information page.