How much is the USS worth to you?

[ellengorn]

I work in HE, but considering a move to the private sector. I know the University Superannuation Scheme has been eroded in recent years, but is still good compared to most private company pension schemes so I'm wondering how much "weight" I should give it when considering jobs with higher salaries. I'm 51, my current pay is around £57k and I've been offered a role at £65k. There are pros and cons re annual leave and commute which balance out, but the new employer's pension scheme is fully defined contribution, and is likely to have a percentage of fees (because most do). The job itself is similar to what I do now so I could take it or leave it. How much of a rise would tempt you you make the move if all other factors balanced out?

Can you get a projection for what the USS will pay you at retirement given what you have accrued?

Bear in mind that the defined benefit element of the USS is not all that now that it’s not linked to inflation but capped at 2%. It’s going to be eroding significantly now.

What is “a percentage of fees”? Do you mean contributions from you? There isn’t normally a fee payable by you for joining a pension scheme. I would get a pension projection but I bet what you have is a better deal and worth some salary sacrifice. You need to weigh up contributions: yours and your employer, benefits, when it will be paid and how it’s calculated. When can you access it? You have whacking employer contributions with USS. 21.6%. I doubt the private sector will get near that.

No… but the USS contributions are universal ie the 21.6% is not directed to OP but to fund the scheme overall.

But if OP has been in USS for a long time, most of her pension will be calculated on final salary - existing members only changed to career average three or four years ago.

OP you won't lose your existing USS, but youd need to calculate how many years service you'd lose - 15? So 15/80 (is it 80ths?) x £52k ish (your average salary) pension you'd lose. Vs the pot you'd build up - how much would 15 years of that pot buy or allow you to draw down?

@SheilaFentiman
Its still a huge amount and definitely not put in by other employers. If it final salary it’s a no brainer surely?

USS isn't final salary. It is a career average scheme with a cap of £40k (i.e. those with salaries over 40k can't build up any greater db pension, but do get some dc) and an inflation cap of 2.5% that means that current and future contributions are likely to erode with inflation.

The point on the employer's contribution is that much of this goes into filling the deficit and does not build up benefits of that value for you as an individual.

OP - in answer to your question it's partly dependent on your individual circumstances. Do you already have a DB pension built up that meets your needs in retirement?

Well there’s a reason why final salary disappeared! No one could afford it. Inflation might come down too. There’s little great about private pensions either after Liz Truss.

Sure but the OP is thinking about how to value it and the current situation is very different from (and much less valuable than) the old final salary scheme. Over the next 40 years or so there's a significant risk that the 2.5% inflation cap will lead to real erosion of the benefit.

OP - what would your contributions and the employer's contributions be for the new job?

“The point on the employer's contribution is that much of this goes into filling the deficit and does not build up benefits of that value for you as an individual.”

yep

That’s because the benefits are generous. Historic benefits are very generous and need to be paid for. If there was no historic element I imagine the employer contribution could go to the future retirees. The sector has expanded hugely. It’s inevitable changes had to be made as the state couldn’t afford these pensions. If you look at other pensions in the private sector they are far less generous. Final salary pensions for most went decades ago.

My USS has a great benefits illustrator so you can play around with that to give an estimate of how much your benefits grow for each year in USS.

Yes sure. But the question isn't whether it was right to reform USS or what should happen etc, it's how the OP should value it in comparing her employment options. In doing that the employer's contribution is not the number to use because it doesn't directly relate to the benefits she accrues. Instead she needs to compare the benefits that she will accrue in each of the options and the relative cost to her. Of course that's a little tricky with USS because of its hybrid nature and the difficulty of putting a number on the DB part. She could use multiply the DB part by 20 in the way that HMRC do in calculating the LTA, but that will probably be an undervalue. She could look at the cost of an equivalent annuity, she could use an equivalent drawdown based on somewhere between 2-4% but none are perfect. It partly depends on what the OP would actually do with her DC pension and whether her personal circumstances mean that the survivor's pension etc are valuable to her.

Well put, Mia85.

OP, you also need to put a value on the ill health retirement part (a personal value to yourself)

@Mia85
All this assumes the op will know what the pension will be in her new job. That’s not easy either. Yes, she earns more but might find the pension provision poor in comparison.

I understand the employers contribution is not direct. In effect it shores up the scheme for everyone. Without it you would all be worse off. That’s fact. The benefits of the uss scheme are still very good. Many self employed people would jump at it!

To note, the employee contribution is now just under 10%. OP, have a think about what level of contribution you would make in your new role. Your net pay will likely go up in this way as well.

And how much the employer contributes!

Also consider whether you have a partner and dependent children - the USS death in service and dependents pensions are good.

"Historic benefits are very generous and need to be paid for."

Yep. There is a good chance that those retired on the full DB scheme will earn more, net, on 2/3 final salary than those currently on the same full salary, given their inflationary rises are more, they are not paying into the scheme and they don't pay NI.

So OP doesn't benefit from much of these.

Hence not a simple mapping of what employer/employee pay. If I could put my 9,8% and even half of the uni's 21.6% into a private pension just for me, at the current low level of DB and inflation allowance, I would probably do better.