8 December 20031 Proposed Merger of OUSS with USS Miles Hedges Finance Director.

8 December 2003 1

Proposed Merger of OUSS with USS

Miles Hedges

Finance Director

8 December 2003 2

Agenda

• Reasons for the proposal

• Process

• Timescales

• Comparison of the two schemes

• What happens next?

• Your questions

8 December 2003 3

Reasons for the Proposal

• Benefits for staff

• Benefits for the University

• Cost to the University

8 December 2003 4

Benefits for Staff

• One scheme for everyone

• Eliminates the promotion problem

• Allows staff greater mobility between universities

• Provides security of a national pension scheme

8 December 2003 5

Benefits to the University

• Greater stability of its future pension contributions

• Greater stability of its reported pension costs

• Remove administrative burden of dealing with more than one pension scheme

8 December 2003 6

Cost to the University

• The University is willing to pay a premium in order to achieve the benefits for staff and itself

• There is a limit to the amount of the premium that can be afforded

8 December 2003 7

Process

A long and complex process, involving:• The University Council – merger approved in principle

up to a given financial cost

• USS Trustees – the merger process and template has already been approved in principle

• OUSS Trustees – have to be satisfied that the merger is in the best interests of members

• OUSS Members – have to be satisfied that the merger is in their best interests

8 December 2003 8

Process

• Discuss proposals with trade unions

• Put project team in place• Inform staff – including this meeting

• Negotiate terms with USS• Take legal advice – both University and OUSS Trustees

• Take actuarial advice

This is a long and complex process

8 December 2003 9

Timescales

• Sep 2003 – Council decision in principle

• Oct 2003 – commenced discussions with trade unions

• Nov 2003 – project team formed; letter to all staff in OUSS

• Dec 2003 – open meeting for all staff; discussions with USS

• Jan 2004 – continued consultation with staff

• Mar 2004 – target date to agree principles of merger

• Jul 2004 – target date to complete merger if terms and financial conditions are right

8 December 2003 10

Comparison of the two schemes

USS• National scheme• Security based on HE

sector as a whole• Retirement age 65• Option to retire from

active service at 60

OUSS• Local scheme• Security depends on

a single employer• Retirement age 65• Option to retire from

60

8 December 2003 11

Comparison of the two schemes

USS• Pension = 1/80th of

salary for each year of service PLUS

• Lump sum of 3/80th of salary for each year of service

• Can convert lump sum into pension

OUSS• Pension = 1/60th of

salary for each year of service

• Can convert pension into lump sum up to Inland Revenue limit

8 December 2003 12

Comparison of the two schemes

USS• Dependent’s pension =

1/160th for each year of service

• Lump sum death in service benefit = 3 x salary

• Ill health pension = full service to normal retirement date

OUSS• Dependent’s pension =

1/120th for each year of service

• Lump sum death in service benefit = 2 x salary + refund of contrib’ns

• Ill health pension = service to date + 5 years

8 December 2003 13

Comparison of the two schemes

USS• Employee’s

contribution = 6.35% less tax relief

• Maximum pension increase = RPI increase

OUSS• Employee’s

contribution = 6.00% less tax relief

• Maximum pension increase = RPI up to a maximum of 5% in any one year

8 December 2003 14

UK INFLATION RATE: 1948 to 2003

-5

0

5

10

15

20

25

30

Jan-48 Jan-58 Jan-68 Jan-78 Jan-88 Jan-98

Date

%

UK INFLATION RATE

8 December 2003 15

Pension After 10 Years at Varying Inflation Rates

£0

£5,000

£10,000

£15,000

£20,000

£25,000

2.50% 5% 10%

Annual Inflation rate

Ann

ual P

ensi

on

OUSS Female

OUSS Male

USS Both

8 December 2003 16

Pension After 10 Years at Varying Inflation Rates

£0£2,000£4,000£6,000£8,000

£10,000£12,000£14,000£16,000£18,000

2.50% 5% 10%

Annual Inflation Rate

Ann

ual P

ensi

on OUSS Female

OUSS Male

USS Both

8 December 2003 17

Pension After 10 Years at Varying Inflation Rates

£0£2,000£4,000£6,000£8,000

£10,000£12,000£14,000

1 2 3

Annual Inflation Rate

An

nu

al P

ensi

on

OUSS Female

OUSS Male

USS Both

8 December 2003 18

Spouse's Pension After 10 Years at Varying Inflation Rates

£0

£1,000£2,000

£3,000£4,000

£5,000£6,000

£7,000

1 2 3

Annual Inflation rate

Ann

ual P

ensi

on

OUSS

USS

8 December 2003 19

Comparison of the two schemes

• Merger is the last stage in a long process• Many changes have been made in the

past to bring benefits together – generally these involved increasing OUSS benefits but not always

• Remaining changes involve some measure of trade-off – in the same way as buying an insurance policy buys peace of mind if things go against you

8 December 2003 20

What happens next?

Communication plan:• Letter to you• Today’s meeting• Your questions and our responses• Regular progress reportsKey dates:• March – agree merger principle• August – start of your USS membership

8 December 2003 21

Your Questions

• To the panel now – Philip Marsh, Joe Devlin & Miles Hedges

• Information and questions and their responses will be posted on Personnel intranet

• Email to [email protected]

• To your trade union representatives