Pensions

[separatedandseething]

Can anyone explain what is happening re pensions? Do the latest proposals affect people already receiving their pension? Do the cuts in payouts affect what has already been earned. My CETV is really low already. Would its value be cut?

As far as I know, the cuts will be going forward and will not operate retrospectively or cut or affect anything you’ve already accrued.

No change for people already receiving their pensions.

No change to the benefits you've already built up.
Going forward they plan to reduce the salary cap for defined benefits, and also cut the accrual rate those benefits build up at.
The defined contribution section doesn't change except that most higher paid will build more of their benefits in this section.

The thing that bothers me about the pension going forwards isn't the salary cap for defined benefits or the cut to the accrual rate - this is fair enough really - even with the cuts its still a good deal. Rise in pension age in line with the state pension is still OK.

The issue is the inflation. My understanding is that the increase in pension once in payment in line with inflation is currently capped at 10% but under the new deal it will be capped at 2.5%. This seems really risky to me. The country has just taken out the biggest mortagage in history to pay for Covid, at some point we are going to start printing money because frankly we don't have a lot of other options, and then inflation will skyrocket.

Even a few years of 10% inflation would basically wipe out any defined benefit pension in payment during that period.

Am I being overwhelmingly gloomy here - or is this a real risk?

Surely DC is better than a DB scheme that is this risky?

(PS am not in the union as I am not going to go out on strike over pensions but I would like to know)

PS I would be delighted if I were wrong

@Beninthesortingoffice
Yes the change to the inflation cap has the potential do really devalue the defined benefit element. It also only applies to benefits accrued after the change. For benefits already accrued the existing arrangements remain in place www.uss.co.uk/news-and-views/latest-news/2021/09/09062021_the-2020-valuation

"Any defined benefits members have already earned will still increase every year in line with previous increases. For benefits earned before October 2011, this is inflation in full. For benefits earned since then it is inflation in full up to 5%, and then by half if inflation is between 5% and 15%."

So for members who've been in the scheme a long time and are nearing retirement it won't make much of difference. For those with longer to go the DB is not going to be the safety net that it was for previous generations.

Thanks - yup. A bit of googling tells me that a 2.5% cap with inflation is the legal minimum.

Not sure if I fall into your "been in the scheme a long time" category. I have about 7 years and am mid 40s. Old enough to care about pensions but a way to go still.

When I look at other jobs they are all DC. I think that the current changes will make USS more complicated but probably not a lot better overall than DC, but more restricted. Well I guess it can't be really. It has to be cost neutral.

It's a worry.

I think the UCU’s outright denial that there is any deficit at all is problematic in terms of its negotiating position. The fact that the vast majority of private pensions are now DC also won’t engender much public support in the event of strikes. I’d prefer a more realistic stance from the Union.

Yeah, my understanding is that the pension contributions are currently about 20% employer 10% employee and that about half the employer contributions are paying off the deficit. So 10% employer contributions - which is still better than anything I have had in the private sector - but they have all been DC not DB.

But until now of course my private employment pensions have all been riskier than USS. I think it is this risk that is changing (even for the retained DB bit).

The court case is interesting. I hadn't realised the 2020 valuation was on the basis on the Covid-19 stock market crash.

I was blithering about inflation above - I think it is an issue for DC as well. Sigh.

Thanks for mentioning the court case, I'd not seen it for some reason. It's this for anyone else who has missed it www.ft.com/content/f1cbed5f-bd44-48ca-9016-fd14ae462f98

This looks interesting www.imperial.ac.uk/news/231116/study-assesses-risks-good-outcomes-university/ linked amended by MNHQ at OP's request

Did you see? Josephine Cumbo (ft pensions on twitter) says UUK has shifted on inflation to avert strikes. Doesn't sound much of an offer (only 3 years, then clawed back I think) But credit to UCU - inflation is the big worry and this is a substantial improvement.

If this all goes ahead, I wonder if it will affect post 92 / Russell group recruitment. I think post 92s aren’t in USS, is that right? I wonder how much potential difference there would be in pension take home

The UUK suggestion to delay the indexation cap isn’t proposed as suggested to avert strikes, it’s in response to views expressed via the recent USS consultation with scheme members. It’s a gesture, but not one that any sensible person would expect to shift the UCU position. Despite all the social media hyperbole the UCU action has had little or no impact, and more strike days during Reading weeks/half-term aren’t likely to change that!