Pensions Update
Emelda Nicholroy
Head of Pensions Policy
Common queries to UCEA
1. What options do HEIs have in relation to
pensions?
2. What risks are HEIs running by
participating in DB pension schemes?
3. What is the sector doing about staff
affected by pensions tax?
4. What else is coming up that we should be
aware of?
Dealing with a pensions legacy
• Pre-92s
– USS set up to mirror Teachers’ Pension Scheme
– Most run their own local scheme for professional
services staff
• Post-92s
– LA background means public sector schemes
– TPS for academics
– LGPS for professional services staff
• University hospitals offer NHSPS
• Auto enrolment schemes for casual staff
Example Pre-92 University
FS
Hybrid –
CARE plus
8%
1%
DC+
over
55.5K
USS
18%
From 5% to
SAT
25%
From 0% to
CARE
9%
DC
TPS
16.48%
FS
From 7.4% to
11.7%
CARE
Minimum 1% NEST Minimum 1%
increasing to 3%
increasing to 5%
by 2019
by 2019
HEI participation (1)
• USS
– Under terms of Trust Deed participating employers
required to enrol any eligible employees in USS
(academic or academic related posts)
– Auto enrolment removes ability to have nonpensionable posts
– Cannot enrol USS eligible employees in an alternative
scheme or pay into an alternative scheme for them
(exception for clinical academics in NHSPS)
– Pensionable pay definition set by USS Trustee
– Unable to “retire and return” unless into a different
role
HEI participation (2)
• TPS
– Participate due to being a HEC
– HEIs differ on definition of “teacher”
– Pensionable pay defined by scheme
• LGPS
– Scheduled body due to being HEC
– Any employee not eligible for another public sector scheme joins
LGPS
– Admitted body by application to fund
– Pensionable pay defined by scheme
– Redundancy entitlement to enhanced pension
• NHSPS
– Only “medical school” teaching medical/dental students
Governance
• Governance structure varies by scheme
– TPS/NHSPS
• Scheme advisory board – HE rep
• Pensions board – HE rep
– LGPS
• Scheme advisory board – HE rep as part of Education
employers
• Local pensions boards – some HEI have reps
• Local committees – few HEI reps or observers
– USS
• Trustee board – 3 UUK nominees
• Joint Negotiating Committee – 5 UUK nominees
• Funding and benefits sub-committee – UUK and UCEA reps
HEI control
• Increasingly strong HE employer voice BUT little direct control
of cost or benefits
– USS
• Assumptions and employer contributions set by Trustee after
consultation with employers
• Benefits and employee contributions negotiated through JNC with chair
having casting vote
• Changes to JNC need to be agreed by JNC
• Usually offer separate scheme or support staff that HEI manages
– Public sector
• Mainly government department view and TUs
• Valuation assumptions set by GAD and HMT
• Cost management process only caps certain elements of future service
cost NOT the deficit
• LGPS admitted bodies have more control
Accounting – FRS102
• USS accounted for as DC BUT now need to disclose cost of
deficit recovery payments on balance sheet
– Could impact on level of surplus shown in Statement of
Comprehensive Income and reduce I&E reserves or net assets
• TPS unfunded so deficit notional therefore treat as if DC
– No change, still off balance sheet
• LGPS/local SAT accounted for as a DB scheme already as
share of assets/liabilities can be identified
– No impact on balance sheet
• BUT no longer account for return on pension assets instead
use net interest leading to increased finance charge
– May cause reduction in income (depending on assets held)
Options
• USS
– Close scheme and pay s75 debt (share of deficit on a prudent
“buy out” basis)
• TPS/LGPS
– Scheduled employers cannot chose to close LGPS/TPS
– Can offer an alternative scheme if members opt out
– Can open a subsidiary and use that to employer new staff (and
possibly transfer existing staff)
– LGPS admitted bodies can decide to close to new
entrants/future accrual, but there may be an impact on cost
Risks
• HEIs are open to a wide range of risks in relation to their pension
provision including:
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Cost of future service
Cost and duration of deficit funding
Appropriateness of benefits for staff
Affordability of employee contributions
Comparability of benefits and contributions in different schemes
Possibility of industrial action
Reputational risks
Disclosures in accounts
Limitations on business restructuring
Implications for mergers
Possibility of triggering section 75 debt
Legislative change
Senior staff and pensions tax
• Increasing numbers of staff affected – not just
senior team
• Especially due to Tapered Annual Allowance
taking into account income from all sources
• Scheme options differ:
– USS – Enhanced Opt Out, Voluntary Salary Cap
and DC AVC options
– TPS/NHSPS – full opt out only
– LGPS – 50/50 (but few members affected)
Reaction to pensions tax issues
• Institution response in one of three camps:
1. No policy in place – few staff affected (may
review on case by case basis)
2. Pay a cash supplement if the member opts
out – aim is to consider total reward but
supplement calculated in various ways
3. Treat it as a personal tax issue and decide
not to offer a cash supplement – often due
to equality concerns
Workforce issues
• Once member has opted out of the pension
scheme their benefit options may be limited
• USS does not allow flexible retirement post EOO election
• DIS and ill health cover rely on member election (USS only)
• Enhanced/early pension on redundancy – policy changes needed?
• What about differences between the schemes?
• NHS/LGPS/TPS members cannot opt for DIS or ill health cover
• How to apply consistency in assessing the value of the reward package?
• How to calculate, document and manage any cash supplement?
• Equity – opt-out for costs vs. opt-out for tax
• Interface with auto-enrolment duties
• A case for policy transparency?
Further information
Current issues
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Scheme valuations ongoing
LGPS review of third tier bodies
TPS review of subsidiaries
General election has stopped a number of
other consultations
– SPA increases
– S75 debts
– Green paper on DB affordability
Questions?
© UCEA 2017