The following glossary explains frequently used terms that are relevant to USS, pensions and investments more broadly and the proposed changes to future benefit arrangements provided by the Scheme.
The proportion of salary a member receives annually as a pension in retirement for each year of active membership of the defined benefit part of the scheme, the USS Retirement Income Builder, e.g. currently 1/85 of your salary up to the salary threshold is built up each year. This is subject to change as part of the JNC’s proposals.
The contributions above a member's normal contributions, which you may choose to pay to the defined contribution part of the scheme, the USS Investment Builder, in order to build up additional savings.
An active member of USS or someone who is eligible to join the Scheme in the course of their current employment – so someone that the proposed Scheme changes would affect, should they be implemented.
An insurance policy you can buy upon retirement using your DC pension savings. It usually pays a guaranteed income for life. The income received will depend on a number of factors, including the amount of money in your pot, the level of indexation of the pension you wish to have, market conditions, your age, your health and whether a survivor's pension will be provided upon your death.
In the context of USS, these are the different types of investments held within the fund and purchased using the contributions made to the Scheme. The assets may include, for example, company shares, government bonds, property, infrastructure and cash. The assets back the benefits provided by the Scheme.
The statutory consultation process that allows affected employees and appropriate representative bodies to provide their views on the proposed scheme changes before any final decisions are made on whether or not to implement the changes.
+Consumer Prices Index (CPI)
An official measure of inflation used in the UK and published monthly by the Office for National Statistics.
+Defined benefit (DB) arrangement
A type of pension arrangement that offers a set level of benefits at retirement, usually based on a formula that takes account of your salary and service. The USS Retirement Income Builder is a defined benefit arrangement.
Your contributions and the contributions your employer pay earn you a proportion of your salary as a retirement benefit. This benefit accumulates over time and when you retire, you will receive your pension and lump sum benefits.
+Defined contribution (DC) arrangement
A type of pension arrangement in which the member builds up a fund to be used to provide benefits later in life. The fund is based on the amount contributed by both the member and the employer, how the contributions are invested, the effect of charges (which in USS are by industry standards comparatively low) and how those investments perform. It differs from a DB arrangement in that it does not offer a 'set level' of benefits. The USS Investment Builder is a DC arrangement.
Flexi-access drawdown allows you to draw income from a DC pot, whilst leaving the balance invested. You would have to transfer out of the Scheme to a drawdown provider to access your Investment Builder funds in this way (but USS can help you do this at retirement).
+Ill health retirement
Also referred to as incapacity retirement.
If you've been a USS member for at least two years (generally speaking), the Scheme will pay you retirement benefits (subject to you satisfying certain criteria), which have not been actuarially reduced for early payment, from any age if you have an illness or condition that prevents you from working or reduces your capacity to work. Enhanced incapacity benefits are also payable in some circumstances.
In the context of the Scheme, the liabilities are the value of pension benefits which have been accrued by members in the Retirement Income Builder to date and which are due from the Scheme both now and in the future.
By law, liabilities have to be based on certain assumptions because it's impossible to know for definite in advance what might happen, for example, how long an individual pensioner will live to draw a pension. The value of the liabilities is, therefore, based on assumptions made by the Trustee, having taken advice from the Scheme actuary. The Trustee is under a duty to act prudently in setting the assumptions.
+Normal Pension Age (NPA)
Currently age 66, NPA is the earliest age from which you’re entitled to draw benefits from the Retirement Income Builder without actuarial reduction (with the exception of special circumstances, such as ill-health retirement). The NPA will change in the future broadly in line with increases to the State Pension Age.
+Official pensions (and increases in line with official pensions)
Official pension increases are paid to workers in the public sector, such as teachers and civil servants. Increases in official pensions are currently linked to CPI inflation. USS will match the full increases for any USS benefits you earned before October 2011. For benefits earned after that date USS currently matches increases in official pensions up to a cap of 2.5%. This is subject to change as part of the JNC’s proposals.
Defined under the Scheme rules as a cessation of employment (or the cessation of active membership on the grounds of incapacity) on or after minimum pension age (currently 55) without a member taking in either case any other employment which would give entitlement to membership of the Scheme.
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.
When you become a member of USS you automatically join the Retirement Income Builder. You’ll build up benefits based on your salary, up to an annual Salary Threshold, this is £41,004 for the 2022/2023 Scheme year. If you earn above the Salary Threshold, you and your employer will contribute to the Investment Builder. The Salary Threshold increases in line with official pensions, but subject to an annual cap of 2.5%. The level of the salary threshold and the annual cap are subject to change as part of the JNC’s proposals.
+Tax-free lump sum
Once you retire, you'll get an income for life from the Retirement Income Builder and a one-off, tax-free (up to a limit) cash lump sum of three times your annual 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 too, you can take some or all of these as a cash lump sum or sums or use your savings to purchase an annuity from an insurer.
But there's a limit on the amount of benefits that can be taken as tax-free cash.
Broadly the level of assets required by the trustee to provide the pensions already promised under the rules of the Scheme.
Universities Superannuation Scheme Limited is the trustee of the Scheme. The trustee makes sure the Scheme is run in line with the trust deed and rules and all relevant law and regulations.
+USS Investment Builder
If you've earned above the salary threshold, transferred money into USS from another pension scheme since October 2016 and/or made additional contributions since October 2016, you'll have built up Investment Builder savings.
The Investment Builder is the defined contribution part of the Scheme. It is a flexible way to save for the future, allowing you to invest in one or more of the 10 'Let Me Do It' funds, or you can choose either the Default Lifestyle or Ethical Lifestyle 'Do It For Me' options and USS will manage your investments for you on your behalf. If you don’t make an investment choice, you'll automatically be invested in the Default Lifestyle Option.
There are various ways in which you can take your savings from the Investment Builder, including as a tax-free cash lump sum or sums, transferring out to another provider to access a drawdown product or buying an annuity, the latter of which will usually provide a guaranteed income for life.
+USS Retirement Income Builder
Currently, when you become a member of USS you automatically join the Retirement Income Builder. This provides you with a set level of retirement income, based on your salary during each year of membership and how long you've been a member of the Scheme.
You currently earn 1/85 of your salary (up to the Salary Threshold) as your pension plus a lump sum three times your pension. At the end of each Scheme year, your benefits are calculated and 'banked'. They increase broadly in line with inflation (subject to a cap) before and after retirement in line with Official pensions.