Emelda Nicholroy Head of Pensions Policy Common queries to UCEA What options do HEIs have in relation to pensions What risks are HEIs running by participating in DB pension schemes What is the sector doing about staff affected by pensions tax ID: 598915
Download Presentation The PPT/PDF document "Pensions Update" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Pensions Update
Emelda Nicholroy
Head of Pensions PolicySlide2
Common queries to UCEA
What options do HEIs have in relation to pensions?
What risks are HEIs running by participating in DB pension schemes?
What is the sector doing about staff affected by pensions tax?
What else is coming up that we should be aware of?Slide3
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 staffSlide4
DC
Example Pre-92 University
USS
Hybrid – CARE plus DC over 55.5K
SAT
FS
CARE
NEST
TPS
CARE
FS
18%
8% + 1%
16.48%
From
7.4
% to
11.7%
From
5%
to
25%
From
0%
to 9%
Minimum 1% increasing to 3% by
2019
Minimum 1% increasing to 5% by
2019Slide5
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 non-pensionable 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 roleSlide6
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 LGPSAdmitted body by application to fundPensionable pay defined by scheme
Redundancy entitlement to enhanced pensionNHSPS
Only “medical school” teaching medical/dental students Slide7
Governance
Governance
structure
varies by scheme
TPS/NHSPS
Scheme advisory board – HE rep
Pensions board – HE rep
LGPSScheme advisory board – HE rep as part of Education employersLocal pensions boards – some HEI have reps
Local committees – few HEI reps or observersUSSTrustee board – 3 UUK nominees
Joint Negotiating Committee – 5 UUK nomineesFunding and benefits sub-committee – UUK and UCEA repsSlide8
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 employersBenefits and employee contributions negotiated through JNC with chair having casting vote
Changes to JNC need to be agreed by JNCUsually offer separate scheme or support staff that HEI manages
Public sector Mainly government department view and TUsValuation assumptions set by GAD and HMT
Cost management process only caps certain elements of future service cost NOT the deficitLGPS admitted bodies have more controlSlide9
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 sheetBUT 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)Slide10
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 costSlide11
Risks
HEIs are
open
to a wide range of risks in relation to their pension provision including:
Cost of future service
Cost and duration of deficit funding
Appropriateness of
benefits for staffAffordability of employee contributionsComparability of benefits and contributions in different schemes
Possibility of industrial actionReputational risks
Disclosures in accountsLimitations on business restructuringImplications for mergers
Possibility of triggering section 75 debtLegislative changeSlide12
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)Slide13
Reaction to pensions tax issues
Institution response in one of three camps:
No policy in place – few staff affected (may review on case by case basis)
Pay a cash supplement if the member opts out – aim is to consider total reward but supplement calculated in various ways
Treat it as a personal tax issue and decide not to offer a cash supplement – often due to equality concernsSlide14
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?Slide15
Further informationSlide16
Current issues
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 debtsGreen paper on DB affordabilitySlide17
Questions?
©
UCEA
2017