SAUL Proposed Changes

Members who join SAUL from 1 July 2012 will build up benefits in a new section of SAUL. The pension, lump sum and death benefits available in this section will be calculated using CARE rather than Final Salary. The CARE section will continue to provide Defined Benefits, which provide a pension of 1/80 of Salary for each year of service and a lump sum at retirement of three times annual pension. Benefits on death will stay the same and a lump sum of 4 x Salary plus a return of contributions will still be paid on death in service.

Under the current basis a member receives a pension of 1/80 of Final Salary for each year of service. Under CARE a member receives a pension of 1/80 of the Salary paid in each year. Each year’s benefit is then increased to retirement in line with the Consumer Prices Index, which is capped as described on page 4.

Put simply:
• in Final Salary schemes pension is based on salary at or near the time a member retires, but
• in CARE schemes pension is based on salary earned each year increased to retirement, and is not related to salary increases. Page 7 explains the Salary used to calculate CARE benefits in SAUL.

Why is this proposed? ► The CARE section will still provide members with Defined Benefits that increase in value. CARE reduces the risk of higher than expected Salary awards increasing the Scheme’s Liabilities.

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How does CARE work?

The example below shows how CARE works for a member of SAUL over four years. It shows:

the benefit earned each year using the member’s Salary and the Scheme’s Accrual Rate;
how each year’s benefit is increased to the end of the four-year period (assuming that CPI is 3% a year); and
the total pension and lump sum earned at the end of the four-year period.

Year	Salary paid in the year	Salary paid/Accrual Rate	Benefit earned in year	Increase (assuming CPI of 3% each year)	CARE pension at the end of year 4
1	£20,000	20,000/80 =	£250.00	3 years at 3% =	£273.18
2	£21,000	21,000/80 =	£262.50	2 years at 3% =	£278.49
3	£22,000	22,000/80 =	£275.00	1 year at 3% =	£283.25
4	£23,000	23,000/80 =	£287.50	0 years at 3% =	£287.50
Total annual pension at the end of year 4 =					£1,122.42
Total lump sum at the end of year 4 =					£3,367.26

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Salary used for calculating CARE pension

SAUL pensions are currently calculated using normal Salary which includes permanent allowances, contractual overtime and shift allowances, but excludes bonuses and non-regular overtime. The Employers and recognised Trade Unions are discussing how non-regular overtime will be pensionable under CARE.

Why is this proposed? ► Under CARE, benefits are calculated each year, which means benefits reflect pay that has varied over time. So the proposals permit allowances above basic pay to be taken into account when calculating benefits. Final Salary benefits are based on salary at or near the time a member retires. So it’s difficult for benefits to fairly reflect pay that may have varied over many years as a result of overtime and allowances paid above normal salary.

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Normal Pension Date

The proposals say that Normal Pension Date for members joining from 1 July 2012 will be 65. Afterwards it will be linked to increases in state pension age. The government has proposed that state pension age will increase to 66 from April 2020. So SAUL’s Normal Pension Date will be 66 for benefits built up after April 2020.

If state pension age increases again, SAUL’s Normal Pension Date will also increase. The revised Normal Pension Date will apply only to benefits built up after the date that state pension age changes.
Members will still be able to retire before Normal Pension Date, but with a reduced pension.

Why is this proposed? ►This reflects changes to state pension age and that many people are expected to work for longer.

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Early retirement

Members who join SAUL from 1 July 2012 will receive a reduced pension if they retire before Normal Pension Date.

Why is this proposed? ►This lessens the funding pressure on SAUL by reducing the number of unreduced pensions being paid. Currently, SAUL members can retire and receive unreduced pensions from age 60.

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Benefits upon redundancy

Members of the CARE section of SAUL who retire before age 65 because of redundancy will receive a reduced pension due to early payment.

Why is this proposed? ►This lessens the funding pressure on Employers who must currently fund an unreduced pension if a member retires due to redundancy. Full pensions may still be negotiated as part of local agreements.

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Pension increases

The benefits of members in the CARE section will receive increases as described here. The Trustee will keep the right to provide discretionary increases above these levels.

Why is this proposed? ►This reduces the risk of high inflation increasing SAUL’s Liabilities.

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Qualification for ill-health retirement

The proposals say members of the CARE section must contribute to the Scheme for two years before qualifying for an ill-health pension.

Why is this proposed? ►This lessens the funding pressure on SAUL by reducing claims from members who have contributed little to SAUL but might otherwise be entitled to a comparatively high pension.

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Superannuation Arrangements of the University of London
1 King’s Arms Yard, London EC2R 7AF

Website last updated 18 May 2012