5. Guidance
5.1 USS Arrangements
The USS has introduced various voluntary amendments to help affected members address the high tax charges on benefits, including an “Enhanced Opt Out” and a “Voluntary Salary Cap”. These can be used in conjunction with the supplement in lieu of pension.
5.1.1 Enhanced Opt Out
Employees who choose to leave active membership of USS will no longer be automatically covered by death in service or ill health provisions.
USS has introduced an arrangement called Enhanced Opt Out. Should an employee elect for this option and then die in service or retire due to incapacity, EOO will provide benefits as if the individual had remained in USS active membership. This cover costs employees 2.5% of pensionable salary. The University also contributes 2.1% of pensionable salary for individuals who choose to take advantage of EOO. Please note these are the rates set by the USS as at 1 January 2017 and may be subject to change. For the latest rates please visit the USS website. Further details on EOO are included in mini-fact sheet 3, “Enhanced Opt Out”, available to download from the USS webpage on pension scheme tax allowances.
The level of the cash supplement has been set in the expectation that most individuals who opt out of active membership of USS will take advantage of the cover provided by EOO. There is no adjustment to the pension cash supplement for those who do not opt for EOO.
Those who choose to opt out of active membership of USS should state in the appropriate section of the Supplement in lieu of pension form whether they wish to choose EOO. If they do, they should also complete the USS enhanced opt out form and enclose it with the completed application for the supplement in lieu of pension form.
5.1.2 Voluntary Salary Cap
A Voluntary Salary Cap is also available to members of the USS to limit the value of their pensionable salary. Employees may use the cap to help manage their future benefit accrual within the Annual or Lifetime Allowance thresholds. The VSC must be no lower than the defined benefit salary threshold (£55,550 from April 2017).
Should an individual choose the VSC, the cash supplement will be available on pensionable salary above the VSC. Further details of VSC are included in mini-factsheet 4, “Voluntary Salary Cap”, available to download from the USS webpage on pension scheme tax allowances. Individuals will be able to maintain full death in service and incapacity benefits in return for contributions of 2.5% (or other amount as set by USS) of salary above the VSC
Those who choose the VSC (are subject to AA or LTA tax charges) and wish to take the cash supplement above the VSC, should state on the supplement in lieu of pension application form whether they wish to maintain death in service and incapacity cover above the VSC and complete the relevant USS VSC form.
5.2 Independent financial advice
Employees who decide to opt out of active membership of USS must seek independent advice as to whether to choose EOO. It is recommended that employees also take independent financial advice as to whether the additional cash allowance, subject to tax and National Insurance, outweighs the benefits of membership of USS, albeit subject to tax charges in respect of benefits above the LTA and AA permitted maxima. This is not a straightforward decision and in some instances, further accrual of pension benefits, albeit above the LTA and AA limits, could provide better value than the cash alternative. Please note the University of Cambridge Pension Office and the USS cannot provide advice in this regard.
5.3 Payment of the cash supplement
Those who cease active membership of USS and can demonstrate that they meet the eligibility criteria may apply for gross monthly payments equating to 12% of their pensionable salary, as defined under the rules of the relevant pension arrangement, in accordance with the University’s Pension Policy. These payments will replace the employer contributions relating to active membership of the pension arrangement.
If an individual re-joins the pension arrangement, payment of the cash supplement will cease. Should an individual elect for EOO, the required employer contributions of 2.1% (currently) will be paid to USS, in addition to the 12% paid to the employee. The individual will be responsible for any member contributions required under EOO (currently 2.5%).
5.4 Re-joining active membership of USS
Eligible employees who have opted out of active membership of USS, but wish to re-join the scheme can do so by contacting the Pensions Office. Individuals are advised to obtain independent financial advice in relation to their own tax and retirement saving arrangements.
The arrangement will be reviewed periodically, and when there is a change in the taxation of pensions, employer contribution rates or other pension arrangements and maybe amended or withdrawn.
5.5 Members of the NHS Pension Scheme (NHSPS)
Members of the NHSPS with pension saving above the LTA or AA maxima may elect for the pension cash supplement, if they meet the eligibility criteria above. It should be noted that:
- NHSPS does not have an alternative for death in service or ill health cover equivalent to EOO in USS; and,
- if, whilst employed by the University, an individual changes their mind, or their situation changes, they will not be able, under current rules, to re-join the NHSPS.
5.6 Members of the CPS
Members of the CPS with pension saving above the LTA or AA maxima may elect for the pension cash supplement, if they meet the eligibility criteria above. It should be noted that:
- CPS does not at present have an alternative for death in service or ill health cover equivalent to EOO in USS; and, employees are strongly encouraged to obtain alternative life insurance cover.
- Eligible employees who have opted out of active membership of CPS, but wish to re-join the scheme may be eligible to do so by contacting the Pensions Office.
5.7 Members of the MRC Pension Scheme (MRCPS)
Members of the MRCPS with pension saving above the LTA or AA maxima may elect for the pension cash supplement, if they meet the eligibility criteria above. It should be noted that:
- MRCPS does not have an alternative for death in service or ill health cover equivalent to EOO in USS; and, employees are strongly encouraged to obtain alternative life insurance cover.
- if, whilst employed by the University, an individual changes their mind, or their situation changes, they will not be able, under current rules, to re-join the MRCPS.