The following glossary explains frequently used terms that are relevant to USS, pensions and investments more broadly and the proposed changes to the arrangements provided by the USS scheme.
The total amount of benefits you’ve built up in your USS Retirement Income Builder, whilst an active member of USS.
NB. Barring closure of USS (eg by insolvency etc), your accrued benefits are fully protected, so your benefits earned to date will not be changed. Proposed changes to USS only apply to future accruals.
A member of USS that's currently paying contributions and building up benefits in the scheme, and people who are paying special contributions to the scheme as a special election. It also includes members that are not currently paying contributions but remain ‘active’ during, for example, a period of authorised absence such as unpaid maternity/paternity leave.
Deferred and pensioner members are generally not active members. However, there are limited cases where they may have benefits in USS under more than one category.
Actuarial valuation - also scheme valuation or valuation
A formal assessment of the scheme's assets and liabilities, which must take place at least every three years. The valuation must include the actuary’s estimate of the scheme’s solvency and the trustee’s assessment of the contributions that will be required to fund the scheme in the future. It uses assumptions about future investment returns, salary increases and mortality, among many others.'
NB. Regular valuations of pension schemes are required by law.
A qualified professional skilled in evaluating and assessing pensions and related risks, particularly long-term demographic and financial risks.
Added years AVCs
Extra voluntary contributions to the scheme that allow you to purchase additional days and years of service. This option ceased to new contributors from 1 April 2016.
Additional contributions (also called additional voluntary contributions (AVCs))
The contributions above a member's normal contributions, which you may choose to pay to the USS Investment Builder (the DC section of the scheme) in order to secure additional benefits.'
An active member of USS or someone that's eligible to join the scheme in the course of their current employment – someone that any proposed scheme changes would affect, should they be implemented.
This is the amount of tax preferential pension benefits you can build up in a tax year before you are re-assessed for income tax. This annual allowance for 2018/19 is £40,000, but it could be lower, depending on your income and whether you’ve drawn any taxed lump sums from defined contribution arrangements. There is further information on the Tax considerations page of the USS website.
An insurance policy you can buy upon retirement using your DB pension savings. It pays a guaranteed income for life. The rate received will depend on a number of factors, including the amount of money in your pot, the level of indexation of the pension, market conditions, your age, your health and whether a survivor's pension will be provided upon your death.
NB. This used to be a requirement for DC schemes when they were drawn, however it is no longer required to buy an annuity to provide the regular pension payments and it is now possible to arrangements where funds can be directly drawn down from the pension ’pot’ and in varied annual amounts to suit.
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 company shares, UK government bonds, property, infrastructure and cash. The earnings on those assets are used to pay the benefits provided by the pension scheme.
By law, employers must automatically enrol ‘eligible jobholders’ into a qualifying pension scheme and make contributions towards it. A jobholder who has been automatically enrolled is free to opt out and receive a refund of the contributions they have paid, if they do so within a set period. Also see Re-enrolment.
Career revalued benefits (CRB)
A type of defined benefit pension in which benefits are accrued annually based on annual salary, with each year's accrual revalued in line with an index (sometimes linked to inflation). The USS Retirement Income Builder is a CRB type pension.
The statutory process that allows representatives of affected employees to respond to the proposed scheme changes. In the case of USS employer consultations, all affected employees are also invited to respond.
Consumer Prices Index (CPI)
An official measure of inflation used in the UK and published monthly by the Office for National Statistics.
Cost sharing rule
Rules 76.4-76.8 of the scheme’s trust deed and rules, which provide for the cost sharing process to take effect when the cost of the scheme has increased and the JNC does not reach a decision on benefit and/or contribution changes. The concept was first introduced into the rules by the JNC following the 2011 valuation and the current wording was introduced after the 2014 valuation.
Benefits built up in the USS Retirement Income Builder become deferred benefits, when you leave the scheme. You’ll receive these benefits when you retire. The deferred pension will increase broadly in line with inflation, subject to a cap.
A member that has completed a period of pensionable service, which qualifies them for benefits on retirement, but who is no longer contributing to USS.
The gap between what a scheme’s assets are worth and the value they would need to hold in order to pay all the members all of the benefits they’ve been promised to date.
NB. Inevitably, this is calculated at any given time point ie at valuation dates.
Deficit recovery contribution
A component of the employer contribution to the fund, currently equivalent to 2.1% of USS salary. This is made by employers to meet any funding deficit over the recovery period set by the trustee.
Defined benefit (DB) arrangement
A type of pension arrangement that offers a set level of benefits at retirement, 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 makes 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 benefits.
NB. DB schemes therefore provide a predictable pension for life. In USS you may also take some money as tax-free cash when you retire and on your death, half of this monthly pension may continue for your spouse or nominated partner (at the discretion of the scheme).
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 and how those investments perform. It differs from a DB scheme in that it does not offer a 'set level' of benefits. The USS Investment Builder is a DC arrangement.
Government reforms have increased your options for withdrawing money from defined contribution arrangements, providing you with more flexibility as you approach retirement.
Defined contribution pot
The savings you’ve built up in a DC arrangement, such as the USS Investment Builder.
Someone that the trustee considers was financially, mentally or physically dependent on you at the time of your death. This could be a partner or another person with a financial dependency on you.
Flexi-access drawdown allows you to draw income from a DC pot, whilst leaving the balance invested. You would currently have to transfer out of the scheme to a drawdown provider to access your USS Investment Builder funds in this way. If a DC pot is transferred in its entirety to the member on retirement it can be invested in a variety of ways, including annuities if regular fixed pension payments are desired, or with a regulated pension provider to enable pension payments to be drawn down as needed. Such DC pots remain intact at death, but may be subject to inheritance tax, and may be transferred to partners or children, tax-free under certain circumstances.
Someone whose employment entitles them to join the scheme but who hasn’t taken up that membership, or someone that’s opted out but remains eligible. Also see ‘prospective member’.
Enhanced opt-out election (EOO)
Allows you to retain your death in service and incapacity cover in USS without building up any further retirement benefits. It is aimed primarily at members that are approaching or that have exceeded their lifetime allowance.
The level of funding employers are able to commit to the scheme over time. The Pensions Regulator refers to it as the ‘extent of the employer's legal obligation and financial ability to support their defined benefit scheme now and in the future’.
A type of defined benefit pension in which the benefits received are related to members' pensionable salary when leaving the scheme or retiring, as well as the length of pensionable service.'
In 2016 the USS final salary section closed. At this point final salary section members’ total benefits up to 31 March 2016 were calculated based on how long they’d been a member of the scheme and their pensionable salary at that point in time.
This allows active members to draw some of their accrued benefits, whilst working fewer hours and continuing to accrue future pension benefits. You’ll need consent from your employer, if you want to access the flexible retirement arrangements.
Hybrid pension scheme
A pension scheme which offers a combination of defined benefit and defined contribution benefits. USS is a hybrid pension scheme, with both the DB USS Retirement Income Builder and the DC USS Investment Builder.
Ill health retirement - also referred to as incapacity retirement
If you’ve been a USS member for at least two years, 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.
The date at which the proposed changes to the scheme are to be implemented. The earliest that any proposed changes following the Employer consultation in September 2018 would be implemented is 1 April 2019.
See ill health retirement
Investment management costs
The costs of managing the scheme’s investments. These include the costs of ‘buying’ investments, charges applied by fund managers, accounting costs, audit fees, regulator fees, registrar fees and the trustee’s own costs, such as conducting the valuation and paying professionals. Management costs in the USS Retirement Income Builder are met by the scheme. In the USS Investment Builder, they are currently subsidised by employers.
The potential for loss in the value of assets relative to objectives or expectations, or for lower returns on investment than expected. The level of risk is different for different types of investment. Generally higher-risk investments (such as equities) offer higher potential returns than lower-risk investments (such as bonds), but also come with the possibility of realising lower returns than such investments.
Joint Expert Panel (JEP)
The JEP is a group formed by Universities UK (UUK) and the University and College Union (UCU) to review the USS 2017 actuarial valuation, and to agree key principles to underpin the future joint approach to the valuation. It is made up of equal numbers of experts, appointed by UUK and UCU (three nominated by each organisation), and it has an independent chair.
Joint Negotiating Committee (JNC)
Under the rules of USS, this is the group responsible for deciding on USS benefit changes. It is made up of five representatives of the employers (nominated by Universities UK), five representatives of the members (nominated by the University and College Union) and an independent chairperson.
In the context of the scheme, the liabilities are the amount of pension benefits which have been accrued by members in the USS Retirement Income Builder to date and which are due from the scheme both now and in the future.
Liabilities can’t be calculated precisely because it’s impossible to know, 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 limit of benefits you can build up without triggering a tax charge. This is £1.03 million from April 2018, and the government is expected to increase the standard lifetime allowance annually in line with inflation.
Matching contributions ("the Match")
Additional contributions of 1% of your salary into the USS Investment Builder currently matched by your employer, if you select the match using My USS. The match only applies to the first 1% of any additional contributions you elect to make.
As part of the operation of the cost sharing rules, it is proposed that the employer part of the match would be discontinued from 1 April 2019.
Should the match be removed, any members who currently take it would continue to make their 1% additional contributions to the USS Investment Builder, but employers would no longer match those contributions from 1 April 2019.
Any members that wish to stop making the 1% additional contribution can do so on My USS.
Money purchase AVCs (MPAVCs)
USS historically offered an arrangement administered by Prudential which allowed members to invest in a range of funds by making additional voluntary contributions on a DC basis. This arrangement is now closed to new members and has been replaced by the USS Investment Builder. Some members have been able to continue paying into their With-Profits arrangement or deposit fund with Prudential.
Normal contributions are currently 8% of USS salary for members and employers contribute the equivalent of 18% of members’ salaries in respect of their employment. It is proposed that these will change starting from 1 April 2019.
Normal Pension Age (NPA)
NPA is the earliest age from which you’re entitled to draw benefits from the USS Retirement Income Builder without actuarial reduction (with the exception of special circumstances, such as ill-health retirement).
There are different NPAs in the scheme, and your service may have more than one, depending on when pensionable service began. The NPA is currently 65. It increases in line with the State Pension Age (SPA). For information on how the SPA will increase in the future, visit gov.uk.
Official pensions (and increases in line with official pensions) - also refer to Public Service Pension Scheme
Official pensions are paid to workers in the public sector, such as teachers and civil servants. USS currently matches increases in official pensions for the first 5%. If official pensions increase by more than 5%, USS will pay half of the difference up to a maximum increase of 10%. Increases in official pensions are currently linked to inflation.
Pension Protection Fund (PPF)
A compensation scheme set up by the government to provide a minimum level of benefit to members of defined benefit schemes whose sponsoring employers become insolvent and where the schemes have insufficient assets to pay the pension benefits owed.
Private sector pension scheme
An occupational pension scheme (but not a public service scheme) that’s registered as a pension scheme with HM Revenue and Customs.
See eligible member
Public Service Pension Scheme
Occupational pension schemes for employees of central or local government organisations, a nationalised industry or other statutory body. Public service pension schemes include the Local Government Pension Scheme (LGPS), the Teachers’ Pension Scheme (TPS), the Principal Civil Service Pension Scheme (PCSPS) and the National Health Service Pension Scheme (NHSPS).
Recognised representative body
Any body recognised by employers as representing members.
If you’ve previously opted out of the scheme, under auto-enrolment legislation, you’ll be re-enrolled every three years if you remain an ‘eligible jobholder’ and should you wish to, you will have to opt out again, each time you’re re-enrolled.
A USS member that’s retired from employment and taken pension benefits.
Defined under the scheme rules as a cessation of employment on or after minimum pension age (currently 55).
Risk is the potential for loss, or for not meeting objectives. It reflects the scope for negative outcomes, which is often measured in terms of the likelihood and the potential impact of these outcomes. For a defined benefit pension such as the USS Retirement Income Builder, risk manifests itself in many ways, such as: in investments whose value falls below target; in liabilities whose value may increase more than expected; in the required contributions which may be greater than budgeted; and in varied manifestations of operational, legal and regulatory risks. Similarly for a defined contribution arrangement such as the USS Investment Builder, risk also manifests itself in different ways, such as: in investments whose value falls below target or fails to keep pace with inflation; in life expectancy that may exceed the period for which retirement saving was planned; and in operational, legal and regulatory challenges.
Salary sacrifice - also known as salary exchange
Where a member has entered into a salary sacrifice arrangement under which the employer has agreed to pay additional contributions to the scheme, the member shall not be required to pay any contributions to the scheme, save for additional contributions. The employer shall pay additional contributions to the scheme equal to the amounts of those contributions which the member would have been liable to pay. The employer shall in addition pay such further amounts to the scheme as are required under the scheme rules/their participation terms.
When you become a member of USS you automatically join the USS Retirement Income Builder. You’ll make contributions based on your salary, up to an annual salary threshold, which is £57,216.50 for 2018/19. If you earn above the salary threshold, you and your employer will contribute to the USS Investment Builder.
An independent actuary appointed by the trustee, as required by law.
See actuarial valuation
State Pension Age
This is the earliest age from which you can take your state pension. The State Pension Age is reviewed regularly. For more information, visit gov.uk.
Target Retirement Age (TRA)
The age at which you intend to access the benefits from your USS Investment Builder. It may be different from your normal pension age (currently 65, but increasing in line with State Pension Age). If you’ve chosen one of the lifestyle options, you’ll need to select your TRA and review it regularly to make sure it’s realistic for your circumstances. If you don’t set a TRA, the default TRA is your normal pension age (usually 65).
The Pensions Regulator (TPR)
The independent body responsible for the regulation of work-based pension schemes in the UK. Its key objectives are protecting the interests of scheme members, promoting good administration, reducing the risk of claims on the Pension Protection Fund, making sure employers fulfil their auto-enrolment duties and making sure employer growth is taken into consideration.
See the Universities Superannuation Scheme
Universities Superannuation Scheme Limited is the trustee company that runs the scheme solely for the benefit of members, on behalf of sponsoring employees. The trustee’s role is to ensure the scheme is run in accordance with the scheme rules and regulatory requirements.
The trustee board is made up of representatives of the scheme’s sponsoring employers (appointed by Universities UK), representatives of the scheme’s members (appointed by UCU) and independent pensions and investments experts. It sets long-term strategy and acts in the best interests of members.
Universities UK (UUK)
A representative organisation for the UK’s universities supporting the work of universities and promoting their interests.
Universities Superannuation Scheme (USS)
The Universities Superannuation Scheme is the principal occupational pension scheme for universities in the UK. As at 31 March 2017, it had more than 390,000 members across 350 institutions.
Universities Superannuation Scheme Limited
See the trustee
University and College Union (UCU)
A trade union and professional association for academics, lecturers, trainers, researchers and academic-related staff working in further and higher education throughout the UK.
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 (including the match), you’ll probably have built up USS Investment Builder savings, to be used later in life.
The USS Investment Builder is the defined contribution section 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 options and USS will manage your investments. 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 USS Investment Builder, including as a tax-free lump sum, transferring out to another provider to access a drawdown product or buying an annuity, which will provide a guaranteed income for life.
USS Investment Management Limited
USS Investment Management Limited (USSIM) is a wholly owned subsidiary of Universities Superannuation Scheme Limited. Its role is to provide investment management and advisory services to the trustee.
USS Retirement Income Builder
Currently, when you become a member of USS you automatically join the USS 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.
Every year, you earn 1/75th of your salary up to the salary threshold (£57,216.50 for 2018/19 and increased broadly in line with inflation subject to a cap). At the end of each scheme year, your benefits are calculated and ‘banked’. They increase broadly in line with inflation (subject to a cap) and each subsequent year, you earn more benefits and these are added to the benefits you’ve already earned, which are paid to you when you retire.
On your retirement, you will also receive a tax free lump sum of three times the gross level of your USS Retirement Income Builder pension.
USS Trustee Board
See trustee board