Supporting Information

Useful links

• Find out more about USS on the USS website.
• In particular there's more information about what USS provides at Your pension explained.
• Find out more about the 2023 valuation.
• Use the modeller to see how your benefits and contributions to USS could change as a result of the proposals.

Consultation materials

How USS Works

Here is some information about the Joint Negotiating Committee’s role and the two parts of USS:

• The defined benefit part of the scheme, the USS Retirement Income Builder
• The defined contribution part of the scheme, the USS Investment Builder

The Joint Negotiating Committee's Role

Under the USS rules, the Joint Negotiating Committee (JNC) ) is the body responsible for deciding whether there should be a change to future benefits in response to a change in the costs of running the scheme set out in the valuation. It also decides how any change to the overall contribution requirement determined by the trustee should be shared between employers and members.

The JNC is made up of five representatives appointed by Universities UK which represents employers, five representatives appointed by the University and College Union which represents members, and an independent chairperson.

At each valuation, the trustee (with actuarial advice) determines the total contribution rate needed to fund the scheme based on the benefits being offered at that time.

It then gives this information to the JNC, which decides how any required change in the contribution requirement is to be addressed by:

• changes to the share of contributions payable by members and employers and/or
• making changes to the benefits the scheme will provide in future.

Why the JNC has proposed consulting on these changes

The JNC's proposed changes are in response to the 2023 valuation, which is expected to show that the contributions required in respect of future benefits for members will go down, while at the same time the funding position for benefits already built up by members is expected to have improved.

What a valuation is

A valuation assesses the scheme's funding position – whether the scheme is expected to have enough assets to meet the future benefit payments. As economic conditions, lifestyles and a number of other factors are constantly changing, the trustee is required by law to carry out a valuation at least every three years.

The defined benefit part of the scheme, the USS Retirement Income Builder, is funded by contributions from members and employers. These contributions are invested by the trustee, to provide your retirement benefits. The level of contributions needed to make sure the scheme has enough money to provide benefits depends on three main factors:

• The level and type of benefits offered;
• key member demographics (such as life expectancy and dependants); and
• the investment returns the scheme's assets can reasonably be expected to achieve.

At each valuation, the trustee reviews the scheme's assets and liabilities, and it estimates:

• whether the scheme's assets can fund the benefits that members have already built up in USS; and
• how much money employers and members need to pay into the scheme to continue to provide the current level of benefits being built up in the future.

Outcomes of the USS 2023 valuation

The 2023 valuation is looking at the position of the scheme as at 31 March 2023. As part of the 2023 valuation, it is anticipated that the trustee will determine that, as at 31 March 2023, USS has a funding surplus of around £7.4bn, on a 'Technical Provisions' basis, which would mean that USS is 111% funded.

It’s also anticipated that the combined member and employer contribution rate required to fund the current benefits provided by USS would reduce from the 31.4% currently required from members and employers (9.8% and 21.6% respectively) to 16.2%.

In light of the anticipated improved funding position and outlook, the JNC has approved to consult on a package of changes outlined on this website to improve benefits for members. The proposed changes on which you’re being consulted are anticipated to require a combined contribution rate from members and employers of 20.6%. These are provisional results at this stage, and the final contribution rates will be confirmed later in the 2023 valuation process following the trustee’s determination of the overall contribution rate.

The JNC's proposed changes are intended to reintroduce the benefit structure that existed prior to 1 April 2022 for service from 1 April 2024, now the funding position and outlook has changed for the positive.

For more information on the change in the financial outlook for the scheme see the Technical Provisions document.

Why have things changed?

There have been significant changes in the economy since the last valuation, with more than 10 years of declining interest rates reversing to reduce the value of the scheme’s liabilities.

At the same time, the cost of making new pension promises – the ‘future service cost’ – has fallen because the price of assets required to back those promises has reduced, which means we can expect to make greater returns on those assets in future.

Following a decision of the trustee to reduce the overall contribution rate, the JNC will be – for the first time in more than a decade – in a position to be able to recommend improving the benefits offered by the scheme and/or deciding how the reduction should be split between members and employers.

The current benefit structure

The defined benefit part of the scheme – the USS Retirement Income Builder

When you join USS, you automatically join the USS Retirement Income Builder. This is the defined benefit (DB) part of USS. When you retire, it gives you a guaranteed income, based on benefits built up through contributions from you and your employer during your career.

Currently, every year, you build up a retirement income worth 1/85 of your salary, up to the salary threshold. This threshold is currently £41,004. At the end of each year, your benefits are calculated and 'banked'. They are then increased broadly in line with inflation (subject to a maximum cap each year, currently 10% but this cap is set to reduce to 2.5% from 2026 and be applied to benefits built up from April 2022) each year.

When you retire, you will also receive a tax-free lump sum. This is worth three times your annual defined benefit USS Retirement Income Builder pension.

There may also be benefits payable to your spouse or civil partner/dependant(s)/child(ren) after you die.

The defined contribution part of the scheme – the USS Investment Builder

If you earn above the salary threshold, have made additional contributions or have transferred in benefits from another pension arrangement since 1 October 2016, you’ll have savings in the defined contribution (DC) part of the scheme, the USS Investment Builder. This defined contribution part of the scheme allows you to invest in one or more funds offered by the trustee.

The amount you build up in the USS Investment Builder depends on how much both you and your employer put into it. It also depends on how well your investments perform, minus any investment charges.

You can use your USS Investment Builder savings in various ways. These include as a tax-free lump sum, investing in a drawdown product or buying an annuity that gives you a guaranteed income for life.

Any USS Investment Builder savings you have when you die will be paid to your beneficiaries as a lump sum. Currently, funds passed to your beneficiaries will be tax-free if you die before age 75 and they are paid out within a relevant two-year period (or taxed at the recipient's marginal rate (if paid to a qualifying person such as an individual) if you die after age 75).