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Pension Deficits and USS

neversay
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Pension Deficits and USS

#308855

Postby neversay » May 15th, 2020, 1:01 pm

I have an old deferred pension with USS worth around £100k that I won't be touching for 15 years or so. I noticed this article on deficits almost doubling:

https://www.telegraph.co.uk/business/20 ... Rx1L4cPvgq

Can anyone explain (or direct me to an explanation) of whether these types of DB shortfalls will/can/are/may be met by deferred as well as current members?

In the past when I've discussed it, I can to the conclusion that it was better to just leave the USS pension to tick along rather than transfer it to my SIPP. If the benefits or performance are going to be impacted to fill the deficit then it may change my mind.

Alaric
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Re: Pension Deficits and USS

#308858

Postby Alaric » May 15th, 2020, 1:12 pm

neversay wrote:In the past when I've discussed it, I can to the conclusion that it was better to just leave the USS pension to tick along rather than transfer it to my SIPP. If the benefits or performance are going to be impacted to fill the deficit then it may change my mind.


Defined benefit scheme legislation works on the premise that once you have left the employer, the rules on what you get are locked in to a considerable degree. The Universities Scheme can call on the sponsoring employers to make up shortfalls. If they cannot there is a safety net, namely the Pension Protection Fund.

If it was a private sector scheme, they might "bribe" deferred pensioners to take their risk away by offering enhanced transfer values. Unlikely with the USS being pseudo public sector I would think.

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Re: Pension Deficits and USS

#308875

Postby dealtn » May 15th, 2020, 1:49 pm

Alaric wrote:
neversay wrote:In the past when I've discussed it, I can to the conclusion that it was better to just leave the USS pension to tick along rather than transfer it to my SIPP. If the benefits or performance are going to be impacted to fill the deficit then it may change my mind.


Defined benefit scheme legislation works on the premise that once you have left the employer, the rules on what you get are locked in to a considerable degree. The Universities Scheme can call on the sponsoring employers to make up shortfalls. If they cannot there is a safety net, namely the Pension Protection Fund.

If it was a private sector scheme, they might "bribe" deferred pensioners to take their risk away by offering enhanced transfer values. Unlikely with the USS being pseudo public sector I would think.


Actually I think USS is eligible, and as such pays its levy to the PPF accordingly.

Bear in mind the PPF limits you to 90% if you are below normal retirement and you scheme "folds". I think there is a cap too at about £35k, but would need to check that to be sure.

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Re: Pension Deficits and USS

#308879

Postby Alaric » May 15th, 2020, 1:56 pm

dealtn wrote:I think there is a cap too at about £35k, but would need to check that to be sure.


That's per year.

According to
https://www.ppfmembers.org.uk/en/FAQs/F ... ment2.aspx

How much is the current compensation cap for PPF members?

This only applies to members that haven’t reached their scheme’s normal pension age when the employer becomes insolvent. The total amount of compensation you can receive each year is capped at a certain level, although the vast majority of members are not affected by this cap.

From 1 April 2020, the cap at age 65 has been set at £41,461. This is an increase of 3.6% from the 2019/20 cap which was £40,020. The increase reflects the level of wage inflation over the period. As the cap is applied before your compensation is reduced to 90% of our levels, the actual amount you would receive as a capped member retiring at 65 is £37,315.

The cap varies by age. For example, at age 60 it is £34,750 and at age 70 it is £50,781. The new cap will be increased for the majority of members. The later you retire, the higher the annual cap is set, as you’ll be receiving payments for a shorter period of time.

neversay
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Re: Pension Deficits and USS

#308913

Postby neversay » May 15th, 2020, 3:45 pm

Thanks @Alaric and @dealtn for your kind replies.

From the previous discussion here, I understood that keeping the USS DB pension alongside my SIPP is a useful insurance as it provides a 'guaranteed' income and death-in-service benefits for my family. That picture changes if there's potential for haircuts to meet shortfalls in the next 15 years.

On a quick check my SIPP is currently up 37% in the last four years, while the USS transfer value has increased by less than 20%. I appreciate these are different measures and risks but there is also a performance gap to consider.

If you were in my position, would you do a more detailed analysis of the USS risks/benefits or just ignore it for 15 years?

Thanks again,

N.

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Re: Pension Deficits and USS

#308923

Postby dealtn » May 15th, 2020, 4:28 pm

neversay wrote:Thanks @Alaric and @dealtn for your kind replies.



Well I never feel comfortable with personal advice. But in general terms a DB scheme is good, particularly if you already have an alternative (which you do). USS is a big scheme, and has a large cohort of "active" members in addition to the deferred, and retired members. It isn't a mature scheme running uncomfortable risks, unlike others, nor is it attached to a company in a dying industry.

Were it me I would be aware of what the scheme delivers, and any potential risks, but I wouldn't be concerned.

neversay
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Re: Pension Deficits and USS

#308927

Postby neversay » May 15th, 2020, 4:39 pm

dealtn wrote:Well I never feel comfortable with personal advice. But in general terms a DB scheme is good, particularly if you already have an alternative (which you do). USS is a big scheme, and has a large cohort of "active" members in addition to the deferred, and retired members. It isn't a mature scheme running uncomfortable risks, unlike others, nor is it attached to a company in a dying industry.

Were it me I would be aware of what the scheme delivers, and any potential risks, but I wouldn't be concerned.


Thanks, that's my gut feeling but it is very helpful to hear your reflections on the question - thank you. My greater concern was not the security of the USS scheme but the 'inheritability' that a SIPP would provide. That obviously depends when I croak.

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Re: Pension Deficits and USS

#308930

Postby scrumpyjack » May 15th, 2020, 4:57 pm

Similarly i think no layman can advise you, but generally I can't see it being politically acceptable for any British Gov to allow the main higher education scheme to go bust or fall back on the PPF. Also the deficit was not that large per the latest accounts (8%)

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Re: Pension Deficits and USS

#317673

Postby Garless » June 11th, 2020, 5:43 pm

Many years ago, mainly 1970s, I was in USS before moving from university to industry. Now because I kept them up to date with several house changes they are now paying me a small pension that, thanks to index linking, is almost as much as I earned in the 1970s and index linked unlike my private defined contribution pensions. So not a lot but after 40 years not a bad investment, pays the wine bill!

neversay
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Re: Pension Deficits and USS

#317676

Postby neversay » June 11th, 2020, 5:55 pm

Garless wrote:Many years ago, mainly 1970s, I was in USS before moving from university to industry. Now because I kept them up to date with several house changes they are now paying me a small pension that, thanks to index linking, is almost as much as I earned in the 1970s and index-linked unlike my private defined contribution pensions. So not a lot but after 40 years not a bad investment, pays the wine bill!


Thanks @Garless. I left the scheme at 32 and now I'm 47. Until recently I thought I would continue working as long as I can, but the nice Spring days in lockdown gave me a first taste of what retirement could feel like. I'd never considered it before as I like my role in my own business.

The USS deficit question came not from a worry that it would collapse, but more that of underperformance and that my lecturer salary and accrued years didn't amount to much in 'final salary' terms. I usually check the transfer-value annually which came to £100k before CV19.

The balance:

1. Take control by bringing it into my SIPP portfolio, and making it 'inheritable' if I shuffle my mortal early (which wouldn't surprise me).
2. Keeping my eggs in different baskets by holding the USS pension scheme and SIPP separately.

The consensus it seems has always been Option 2 in the absence of knowing my DOD. Every time I read about the deficits though it just prompts me to revisit whether that assessment still holds true. But, if it's enough to keep me in wine then it's positively a 'done deal'!


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