Guide to the proposed change to the University of Dundee Superannuation and Life Assurance Scheme (UODSS)

Benefits will build up in a different way from 1 January 2023.

Benefits built up from 1 January 2023:

For current members and staff who join UODSS before 1 January 2023, UODSS will continue to operate on a CARE (Career Average Revalued Earnings) basis but the way the blocks of pension and cash are built up each year will change. From 1 January 2023, blocks of pension will be built up equal to 1/100th of your Pensionable Salary earned each year. In addition, a tax-free cash lump sum equal to 3/100ths of Pensionable Salary will be earned each year. Each block of pension and lump sum will be increased each year in the same way as the current CARE benefits so the benefits are protected against inflation.

The other proposed change is to the Normal Pension Date in UODSS. That is the date at which you can take your full unadjusted benefits. This is currently your 65th birthday. The proposed change is to increase this to age 68 for benefits built up from 1 January 2023. Any benefits earned up to 31 December 2022 will continue to be payable at the Normal Pension Date that currently applies to those benefits. It will remain an option to retire and take your pension earlier than the Normal Pension Date and this will mean your annual pension will be reduced.

Member contributions to UODSS will increase from 1 January 2023:

Following careful consideration of staff feedback and concerns expressed through the unions, the University has revised its proposals from last year to allow members of UODSS to continue to build up defined benefits on a CARE basis. In order to control the cost and risk to the University of continuing to provide benefits in this way (explained further below), member contributions will increase from 7.75% of Pensionable Salary to 8.75% of Pensionable Salary and the University will pay the balance of the cost.

Entry to UODSS will close from 1 January 2023 and a new Defined Contribution arrangement will be set up for new members:

Should the proposed changes go ahead, if you are not a member of UODSS at 31 December 2022 and you are an eligible jobholder (eligibility criteria - individuals aged between 22 and state pension age, earn over £10,000 and work in the UK at grades 1-6 or equivalent) you will be enrolled automatically into the Defined Contribution arrangement. The new Defined Contribution arrangement will be a qualifying pension scheme, which means the University can and will be using it to fulfil its auto-enrolment duties. If you are not automatically enrolled, due to not meeting the eligibility criteria, you will still be permitted to opt-in and join the new Defined Contribution arrangement.

Please note, if you are an eligible jobholder who has previously opted out of the UODSS, the University is required to automatically enrol you into the Defined Contribution arrangement. However, you will be given the opportunity to opt-out of the new scheme.

Death in service benefits will be extended to all eligible staff

As communicated in our August 2021 proposal, we propose to extend the death in service benefit to all staff who are currently entitled to UODSS, where they choose NOT to join UODSS before 1

January 2023 or the Defined Contribution arrangement from 1 January 2023. The proposal is for a death in service benefit of three times Pensionable Salary for this staff group only. This would not require any contribution to be made by staff.

Staff who become contributing members of the proposed Defined Contribution arrangement would receive death benefits as set out in the original proposal (5 times Pensionable Salary plus Defined Contribution fund).

This offer will mean that all eligible staff at grade 6 or below have access to death in service benefits, which currently would only apply if they were to contribute to a pension scheme.

The University of Dundee Superannuation and Life Assurance Scheme (“UODSS”) is a Defined Benefit pension scheme. This means your pension is based on your salary history and your length of pensionable service in UODSS.

Benefits earned before 1 August 2011

A pension equal to 1/80th of Final Pensionable Salary plus a tax-free cash lump sum equal to 3/80ths of Final Pensionable Salary for each year and month of service up to 31 July 2011. The University will continue to maintain the salary-link currently in place for this part of benefits.

Benefits built up from 1 August 2011 to 31 December 2022

Since 1 August 2011, UODSS has operated on a CARE basis. Blocks of pension are built up equal to 1/80th of your Pensionable Salary earned each year. In addition, a tax-free cash lump sum equal to 3/80ths of your Pensionable Salary is earned each year. Each block of pension and lump sum is increased each year so the benefits are protected against inflation. If the proposed changes go ahead, benefits already built up will continue to increase in the same way until retirement or you leaving employment with the University.

Blocks of pension will be built up equal to 1/100th of your Pensionable Salary earned each year. In addition, a tax-free cash lump sum equal to 3/100ths of Pensionable Salary will be earned each year. Each block of pension and lump sum will be increased each year in the same way as the current CARE benefits so the benefits are protected against inflation.

Each block of pension and lump sum built up from 1 January 2023 will be increased each year in the same way as the current CARE benefits built up from 1 August 2011.

Before retirement while a contributing member to UODSS, each block of pension and lump sum will increase by the annual increase in the CPI measure of inflation up to a maximum of 5% each year.

After it comes into payment, your pension will increase each year in line with the annual increase in the CPI, subject to a maximum of 5% each year. The increase applied to benefits built up previously may differ depending on when your benefits were built up. Please refer to Factsheet 11 – Pension Increases on the UODSS website.

If you leave UODSS before retirement, and decide to leave your benefits in UODSS until you retire, your benefits will be revalued between your date of leaving and your Normal Pension Date to protect them against the effects of inflation. Please refer to Factsheet 13 – Leaving Service for details of the rates of revaluation.

The benefits you have already built up within UODSS are protected and not affected by this consultation.

Normal Pension Date in UODSS is currently your 65th birthday. If the proposed changes go ahead, this will increase to age 68 for benefits built up from 1 January 2023. Any benefits earned up to 31 December 2022 will continue to be payable at the Normal Pension Date that currently applies to those benefits i.e. these benefits maintain a retirement age of 65. If you retire later than age 65, your pension and cash lump sum built up to 31 December 2022 will be increased to take account that they will be paid later than age 65.Benefits earned from 1 January 2023 onwards will be subject to reduction if you retire before age 68.

It may be possible to take your benefits before or after age 65. The minimum age for early retirement in UODSS is currently age 55 except for ill health circumstances. The UK Government has confirmed that this will rise from 55 to 57 from 6 April 2028. If you decide to take benefits before reaching Normal Pension Date, the pension and cash lump sum you receive before your Normal Pension Date may be reduced because the pension will be paid for a longer period of time. However, there are certain guarantees available within UODSS which may mean some elements of your benefits are not reduced.

Yes, any benefits earned up to 31 December 2022 will continue to be payable at the Normal Pension Date that currently applies to those benefits i.e. these benefits maintain a retirement age of 65. If you retire later than age 65, your pension and cash lump sum built up to 31 December 2022 will be increased to take account that they will be paid later than age 65. Depending on when you joined UODSS, you may have built up some benefits that are payable earlier than age 65.

Please refer to Factsheet 9 – Early retirement for details of these. 

Currently contributions of 7.75% of your Pensionable Salary are payable by you into UODSS. In order for the University to be able to provide future benefits in UODSS on a Defined Benefit basis, if the proposals go ahead, these contributions will increase to 8.75% of Pensionable Salary from 1 January 2023. This change will be implemented automatically; you do not need to take any action. If your contributions are currently paid via the salary sacrifice arrangement, this will continue. Please see question 'What is salary sacrifice?'.

If you die while you are a contributing member of UODSS, a lump sum of four times your salary at the date of your death is payable free of tax. A refund of your contributions to UODSS will also be paid. In addition, if you are married or have a civil partner, your spouse or partner is entitled to receive a pension of 50% of the pension you would have received at your Normal Pension Date.

If you are unable to work due to ill health or incapacity, you may be able to take your benefits early and an enhanced pension may be payable. Full details of the benefits payable and the circumstances under which members can retire due to ill health or incapacity are set out in Factsheet 14 – Incapacity Retirement on the UODSS website.

The structure or provision of the way that death in service and ill-health pensions are calculated is not changing although the actual amounts will be affected by the changes to the way benefits are built up from 1 January 2023.

No, if you transferred previous pension rights you will have been awarded either added years or a fixed pension and there would be no change to this. Please refer to your transfer acceptance for specific details.

Yes, current members of UODSS can also join the new Defined Contribution arrangement for building up future benefits but you would no longer build up benefits in UODSS. If you decide to join the Defined Contribution arrangement, you will not be able to re-join UODSS in the future. If you choose to opt out, we recommend you take independent financial advice from an approved Financial advisor.

Yes – UODSS members can continue to contribute after reaching Normal Pension Age (NPA). Just prior to reaching NPA, you will be advised of your options below with quotations of your benefits provided as needed:

1.    To remain contributing to UODSS and building up further benefits, or

2.    To opt out, defer your benefits and remain in employment and have a late enhancement factor applied to your benefits when you come to take them.

As a UODSS member, once you reach NPA you can also access your retirement benefits and continue to work on an existing contract if you wish.

The University has considered the option of providing pension benefits via LGPS instead of UODSS. The LGPS provides generous “DB” benefits which are typically highly regarded by employees, both due to the value of the benefits and also the certainty they provide in retirement planning. 

However, this certainty for the employees would expose the University to a position where another body, over which the University had no control, could take decisions that had major implications in terms of the level of risk and cost to which the University was exposed

There is a strong stewardship issue for the University to ensure it looks after its own long-term financial health and pension risk is a significant part of this picture. The option of joining a new DB pension scheme, such as LGPS, would increase the University pension liability and associated risk, significantly. The potential scale of future pension deficits could threaten the University’s long-term sustainability.

The University maintaining control over assets and liabilities provides flexibility to navigate financial risk within the context of the our own interests and circumstances, rather than being locked into other DB schemes which remove this autonomy and where the impact of DB pension liability increases are imposed without local input. As a result, the University has concluded that replacing the existing support staff defined benefit scheme with a defined benefit scheme over which it had no control would not make financial or strategic sense.

The life expectancy in Dundee is taken into account in the assumptions used for the triennial valuation of UODSS to determine the cost of providing the benefits built up in the past and the benefits that continue to build up in the future. As part of the triennial valuation, the Trustees of UODSS, based on advice from the Scheme Actuary, will make assumptions about how long members of UODSS will live in order to determine the amount of money required to meet the benefits due to members. These assumptions will consider the profile of the scheme membership, including where they live as the use of member postcodes is a key factor in determining a scheme-specific assumption of life expectancy.

Future estimates of life expectancy are uncertain and this is one of the key risks that lies with the University in a defined benefit scheme.

This would be possible for a UoDSS member who is over the age of 65, and under the age of 75.  The member of staff could access their UoDSS benefits and thereafter ask to join the new DC scheme.

The deficit will change on a daily basis but there is an increasing trend over the last 10 years. The formal assessment at the triennial valuations show the following deficits:

2011

£21m

2014

£24m

2017

£45m

2020

£70m

If you do not join UODSS by 31 December 2022, you would be enrolled into a Defined Contribution arrangement. In this type of arrangement, contributions paid by both you and the University would build up (with investment returns) in your own individual account and, at retirement, you decide how you want to use the money. It is different to a Defined Benefit scheme in that your pension is not based on a set formula that you know in advance

The value of the pension you would receive from a Defined Contribution arrangement depends on how much is paid in, how the investments perform and what form you take your benefits in. For example, whether you buy a pension with a spouse's pension on death, take a cash lump sum or use your fund in a combination of different ways.

You would have a choice on the contributions you would like to pay. The table below shows the proposed contribution structure in the Defined Contribution arrangement:

If you do not select a contribution rate, you would automatically pay 5% and the University would pay 10%. You have the flexibility to pay more or less than 5%. The table above shows the minimum and maximum contribution levels although you can pay between 2% and 8% in 1% increments and the University will pay between 10% and 13% depending on your choice. You can also pay more than 8% if you wish although the maximum the University will pay is 13%.

No, if the proposal is implemented as proposed it would not affect your actual pay, or any potential pay increases. This proposal would only affect your pension arrangements. 

In a Defined Contribution arrangement proposed here for consultation you choose the contribution rate that suits you. Therefore, you could choose a lower contribution rate than the entry level to reduce the impact on your take-home pay. However, the lower the contribution rate, the lower your pension fund will be at retirement.

You would get full tax relief on the pension contributions you make to the new arrangement, just as you would now if you were a member of UODSS. Pensions are a tax efficient way to save for your retirement. It is the University’s intention to continue to operate a salary sacrifice arrangement for the new arrangement.

The University operates a salary sacrifice arrangement which is outlined in your contract of employment. Under a salary sacrifice arrangement the University pays your contribution to the pension scheme on your behalf and reduces your salary by the same amount. Since your salary is reduced, so is the amount you pay in National Insurance Contributions. As a result, you can make savings on your National Insurance Contributions which in turn leads to an increase in take home pay.

The salary sacrifice scheme does not have any effect on the amount of your pension benefits.

Your nominated beneficiaries would share a payment equal to five times your Pensionable Salary at the date of death plus the value of your Defined Contribution account.

You would be able to draw down the money built up in the new arrangement or buy a pension plus you may have a claim on the ill health income protection insurance.

You could choose to start receiving your benefits currently from age 55. The UK Government has confirmed that this will rise from age 55 to 57 from 6 April 2028.

Whether you would be better or worse off in the new arrangement compared with joining UODSS or another pension arrangement depends on a lot of factors such as your age, how you wish to use your pension savings, the investments chosen in the new arrangement and how they perform and your future salary increases. Therefore, it is not possible to say with certainty whether you would be better or worse off in the new arrangement until you actually retire. If you decide to join another pension arrangement, you will not benefit from the University’s contribution to your retirement savings.

Yes. Please see question 'How much would I have to contribute to the proposed Defined Contribution arrangement?'.

If you are an eligible member of UODSS but have not joined by 31 December 2022, you would be automatically enrolled into the new Defined Contribution arrangement if the changes went ahead. However, you would be able to opt out if you wanted to. You should note that if you opt out, cover for the life assurance benefit (as described in question 17) will reduce from five times your Pensionable Salary to three times your Pensionable Salary. If you decide to opt-out of the new arrangement, depending on your age and salary, you could be automatically re-enrolled around 3 years later provided you are employed by the University at that time. You may choose to rejoin the new arrangement at any time.

Please note, if you are an eligible jobholder who had previously opted of the UODSS, you will be enrolled automatically into the Defined Contribution arrangement. However, you will be able to opt out of the new arrangement.

Further information for staff about the Defined Contribution pension arrangement can be found in the section “UODSS member consultation: information on employee investment choice and support in a Defined Contribution Scheme” on the UODSS website.

The costs of UODSS have risen in recent years and there is a risk of further increases in the future – often for reasons over which the University and the UODSS Trustees have no control e.g. increases in life expectancy and reduced expectations of future investment returns. The University needs to control costs as the Higher Education sector funding environment is uncertain.

Currently, members in UODSS contribute 7.75% of Pensionable Salary towards the cost of providing future benefits being built up, the University contributes 28.3% towards these costs and, in addition, the University also pays a monthly lump sum towards removing the funding deficit in UODSS.

When the Scheme Actuary for UODSS last undertook a formal review of the funding position at 31 July 2020, the deficit had increased compared to the previous valuation. The cost of providing future benefits in UODSS is also increasing.

As a result of the factors above, the University concluded that it should explore alternative options and different means of providing benefits to ensure financial stability in the future and to secure current benefits.

The cost of UODSS and the increased risk it poses are due to a number of factors including:

• Increasing life expectancy – the increase in life expectancy among older adults means more money is needed as pensions need to be paid over a longer period of time.
• Historically low interest rates – whilst this is good for those of us paying for mortgages or loans, it means that we cannot expect UODSS to achieve the same level of investment returns in the future that we have seen in the past. This in turn means that the University needs to set aside more money now to pay for pensions in the future.
• Pension costs are sensitive to wider economic conditions - economic conditions are very volatile, which leads to the cost of UODSS moving significantly. This makes financial planning very difficult. At times when economic conditions worsen, the costs associated with UODSS could increase when the University and members are least able to afford it.

Amending the benefit build up for future service and closing UODSS to new entrants will reduce the liabilities in UODSS over time. This will reduce the ongoing cost assuming contributions payable to a Defined Contribution arrangement are lower than future service contributions payable to UODSS. By reducing the cost of future benefit provision, and increasing cost certainty, the University can afford to pay increased contributions towards removing the funding deficit in UODSS. Making the proposed changes is an important step in ensuring that the University can stay financially stable in the future and protect the pension benefits already accrued by members for their retirement.

The University may not be able to make important investments within the University. If the University does not make changes now, it is likely that it would still need to make changes in the future. The longer the University leaves things before making the changes, the greater the issue will become.

The University believes that the proposed changes are sufficient to address the issues outlined. Clearly, it cannot predict future changes in circumstances.

Yes, the University is not alone. Other universities have taken the tough decision to change their pension provision as the cost of providing this type of pension continues to rise. Some universities have already implemented changes, including introducing a Defined Contribution arrangement for future benefits for all staff, whilst others are consulting with their membership.

The University did consider a range of alternative options including closing the Defined Benefit Scheme to all members and setting up a Defined Contribution arrangement for all future service, reducing the CARE benefits for existing and future UODSS members in a different way, providing a “hybrid” arrangement combining both Defined Benefit and Defined Contribution benefits or offering a low entry, low cost alternative to a pension savings scheme such as National Employment Savings Trust or ‘NEST’. However, these options were considered at length and did not meet the objectives of all parties in terms of the level of benefit provision, the levels of cost certainty in the future, and offering members sufficient flexibility in their retirement saving.

Pensions can be complicated, so helping you to understand the proposed changes is a big part of what consultation is all about. Different people prefer to get information, ask questions and provide feedback in different ways – so there are several ways for you to do this including:

• Attending one of the group member consultation sessions to be held during April and May 2022.
• You can email the “UODSS proposal for change” email address at pensionchanges@dundee.ac.uk.
• You can write to UODSS Consultation, Pensions Consultation, Director of People, 7th Floor Tower Building, University of Dundee, Nethergate, Dundee, DD1 4HN

Please ensure you take the necessary time to consider this guide carefully and submit any feedback or additional queries no later than Friday 24th June 2022.

Please note that neither the University nor the Trustees are allowed to give financial advice. If you want to talk to an independent financial advisor for impartial advice you can find one by visiting Finding an adviser on the Financial Conduct Authority website.

It is a legal requirement that there is a 60 day consultation period. This is so that you have a period where you can consider how the proposed changes affect you and feedback any comments that you have.

At the end of the consultation period, the University will consider all the representations and comments it has received and will make a decision about whether to implement the proposals and, if so, in what form.

At the end of the consultation period, once the University has considered all the responses received, it will write to all of those involved with the consultation to inform them of the outcome.

Yes, the Trustees have been informed of the proposal through regular discussions with the University. If the proposed changes go ahead, the Trustees will be asked to agree to change the UODSS rules so that the build-up of future benefits in UODSS changes from 1 January 2023. The Trustees’ first concern is the protection of the benefits that all members (including pensioners and deferred members) have already built up. It is not the Trustees’ role to negotiate with the University on the future benefit design on behalf of current active members of UODSS.

No, because no decision will be taken about the proposed changes until the consultation process has concluded.

Current pensioners and former members who have deferred pensions will not be affected by the proposed changes and do not need to take any action. It is only current active members of UODSS and current eligible staff who would be affected by the proposed changes.