Edinburgh 1 st December 2010

1. Edinburgh 1st December 2010 USS Workshop

2. Agenda Scheme Administration Scheme Consultation Update USSonline Update Taxation changes from April 2011 Scheme Mergers – revised merger policy

3. Bernie Steventon Scheme Administration

4. KEY ADMINISTRATION FACTORS • Good systems – capable of processing large volumes quickly • Reliable Database – clean, sound • Good administrators – knowledgeable, thorough, care about what they do

6. SYSTEMS • UPM2 – detailed, intuitive process • Processes – under constant review & revision • I.A.P.s – regular feedback • Stable systems • Manual processing for complex, analytical cases

9. Data Base • Quality of data – influences quality of results • Epensions– will improve quality of data • Data Manager – controlling data policies, integrity, security, protection • Pensions Regulator – focusing on data

10. Quality Staff • Training, training and more training • Buddy system • Internal assessments • Formal qualifications PMI, DPC • Softer skills • Monitoring and weekly targets

12. Update on the consultation on proposed scheme changes Brendan Mulkern

13. Developments with regard to the consultation Period of Consultation 64 days Wednesday Wednesday 20 22 OCTOBER DECEMBER

14. Developments with regard to the consultation • High level of usage of website, and good level of responses • Anticipate 10% response rate … on track? • Process of consultation with representative bodies … employer confirmation • ‘Employer view’ facility now available within website • Employers need to review the responses made by their affected employees … although they will be automatically forwarded to USS • Next steps for the trustee company

15. Developments with regard to the consultation • Analysis of responses by the trustee board (delegated group of four directors) • Main task is to identify alternative solutions that would meet the objectives • Not a ballot or referendum … includes fuller consideration of written responses • Consideration by Board on 20/1, followed by JNC

16. Consultation update

17. Responses at 30 November 2010 • 2,400 responses • 2,380 validated • 20 waiting for validation • 745 UCU stock responses

18. Analysing the responses • ‘Filtering’ ability for USS • By hot topic • Other suggestions or solutions • Sentiments/feelings

19. Jayne Shallcross USSonline

20. Breaking News….. • USSonline has gone live!!

21. Go-live & Roll Out • Went Live in November: • USSonline Version 1 • Phased Roll Out over a 4 month period • 8 Institutions before Christmas • All involved in Usability • Two websites running in parallel • Post-Xmas Roll Out • All remaining institutions • Need to be registered and Trained before you can roll out! • Usability institutions contacted separately.

22. Registration – 1st Step. • USSonlines opens up USS data in a different way • Registration form is a contract with 2 set of new Terms and Conditions • USS will issue institution with a registration form based on current Webaccess users over next two weeks. • Application Form must be signed by Users and Official contact whom must have authority to sign. • Once returned to USS, upon roll out users will be issued with username and temporary password.

23. Training – 2nd Step. • There is new functionality within USSonline • It is key for users to become familiar with the system • All potential users of USSonline including those who deal with year end process are. • Nationwide six week Training Schedule throughout January & February. • Full details available: www.uss.co.uk/HowUSSisrun/USSonline • To book: email Communications@uss.co.uk or speak to myself or Mya today or tomorrow. • Place on training course will not be confirmed until Registration form received!

24. USSonline Support • Guidance section • Help section • Usernotes: • Overview Documentation e.g. 'Getting Started’ • Detailed documentation for each element • Video Demonstrations • Specific Query eForms • FAQs • Office support – • Technical Support desk • Business support

25. The Revenue’s new rules for the restriction of tax relief Steve Golden

26. Agenda • Recap on the revised arrangements now proposed • The categories of staff that are likely to be affected • Potential solutions in outline

27. Tax changes … the headlines • Revenue propose changes to both the annual allowance (AA) and the lifetime allowance (LTA) • Important policy change … with balance between annual and retirement taxes • Difficult to see how same objectives can be reached? Source: HM Treasury Red Book Budget document, June 2010, page 55

28. Tax changes … the headlines • Annual allowance set at £50,000 (from £255,000) • Tax relief at source available at marginal rate, with AA excess taxed at marginal rate • A ‘flat factor’ of 16 used to value DB benefits • Introduction of ‘carry forward’ facility for unused allowance from three previous years • Consultation on ‘scheme pays’ option • Onerous new information requirements • Lifetime allowance (LTA) reduced from £1.8m to £1.5m • Protection for existing pots > £1.5m (up to £1.8m) April 2011 April 2012

29. The annual allowance calculation … basic principles The opening amount of the member’s accrued rights £25,000  [ 20 / 80 x £100,000 ] Revalue the opening amount £25,750  [ assume CPI of 3% ] £28,875  The closing value of the member’s accrued rights [ 21 / 80 x £110,000 … assuming 10% pay increase ] Closing value  Opening value [  ] £3,125 Calculate DB value of accrual [ £3,125 x 19* ] £59,375 Tax charge [ (£59,375  £50,000) x 40% ] £3,750 Assuming no carry forward available * A factor of 19 would be used in USS to take account also of separate lump sum

30. The annual allowance calculation … examples Assuming salary increase no higher than CPI

31. The annual allowance calculation … examples Assuming 5% salary increase and CPI of 3%

32. The annual allowance calculation … examples Assuming 7% salary increase and CPI of 3%

33. The annual allowance calculation … examples Members who have spikes in their salary

34. Options for consideration … objectives • Major implications for many USS members • Still over 1,000 affected, and maybe more? • Broad objectives: • Retain members in scheme • Mitigate / eliminate tax liability • Avoid additional complexity

35. Annual Allowance modeller

36. Potential functionality • Model your pension savings against the Annual Allowance (AA) for current year • Model your pension savings against the AA for future years • Include carry forward amounts from previous 3 years • Show options available • Show potential AA tax charge • Include other pension provision

37. Considerations • Will new AA be fixed or increased? If increased, how will it increase? • Salary definition to be used? Implications of the USS Pensionable Salary definition • Simple tool or more sophisticated modelling as part of the Benefit modeller?

38. The trustee company’s revised mergers policy Brendan Mulkern

39. Revised mergers policy • Policy revised following last valuation of the scheme • Reference to EPF document entitled “Self-Administered Trusts: some options for institutions” of May 2010 • Introduction of technical provisions as an additional reference point (formerly gilts +0.5%) • No formal launch of the new policy as yet … scheme changes • Willing to speak further with institutions who wish to explore indicative cost to merge

40. Revised mergers policy – the details • The ‘standard’ merger basis will adopt a discount rate of gilts +1% (the previous basis was gilts +½%). • In the case of university self-administered trusts (SATs), subject to being satisfied of that covenant in each individual case, the discount rate will be gilts +2% (at the Board’s discretion). • The merging liabilities are required to be fully-funded on the USS mergers basis • USS’s demographic assumptions will be used in all calculations, except (in exceptional circumstances) where it would patently overvalue the liabilities

41. Revised mergers policy – the details • Where assets of the merging scheme are insufficient to cover the liabilities, the Board can permit the institution to pay ‘merger deficit contributions’ (MDCs) to USS to cover the shortfall • No dilution of USS’s own ‘technical provisions’ funding level • Duration of MDCs will depend on employer covenant, but can extend to maximum of 20 years • The value of any MDCs paid will be taken into account in event of general deficit contributions being payable (eg no double whammy) • A new maturity check will be applied • Merger must be cost-effective in terms of its administration

42. Any Questions?