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The Superannuation Arrangements of the University of London |
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SAUL Employer Consultation: Your questions Answers to questions submitted through the online consultation are published here. If you have any questions about the proposals which aren’t answered here or in our FAQs, please contact your employer’s Pensions Officer or put your question on the Consultation section of the website. The consultation is between you and your employer so SAUL Trustee Company cannot enter into individual correspondence. |
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Quick Links |
How was it possible for employers to stop paying their contributions for the period August 1992 to May 1995? Is anything being done to reclaim those contributions? When the contribution holiday was agreed there was a statutory requirement that final salary schemes could not be – using very prudent assumptions - over 105% funded. At that time the government was concerned that employers were taking advantage of tax breaks by overfunding their schemes to get tax relief on their contributions. Schemes were required to remove any surplus (above 105%). This could be done in a number of ways including enhancement of benefits, reducing contributions and allowing payments to employers. Schemes that did not reduce their surplus to the required level risked losing their ‘tax exempt’ status. This would mean that member and employer contributions would no longer receive tax relief and tax-free benefits for members would incur tax. The action to reduce SAUL’s surplus was taken because of this legislative requirement and included enhancement to spouse’s benefits, a contribution holiday for employers and a reduction in contributions from members.
As far as possible, the proposed changes seek to allow existing SAUL members to continue to build up benefits in the same way. Therefore the proposed changes will have a very slight effect upon the benefits of active members who are retiring before the end of 2012. The only change for active members would be that, once the pension starts being paid, benefits built up from 1 July 2012 will receive capped increases (if the Consumer Prices Index exceeds 5%). The remainder of their benefits (built up before 1 July 2012) will be completely unaffected. If a member was to leave Pensionable Service, benefits built up from 1 July 2012 would be reduced if the member retired before Normal Pension Date.
Why now? Why not make smaller, reversible changes? Have you considered the impact on recruitment of high quality staff? The increased cost of providing final salary benefits means there is an ever-growing gap between the contributions coming in and the cost of benefits. The change is necessary to make the benefits more affordable. Smaller, reversible changes are highly unlikely to bridge this gap. The consultation on proposed changes to SAUL is the responsibility of your employer. Ultimately is it the responsibility of the SAUL Employers – through the SAUL Negotiating Committee - to form a plan to deal with the funding shortfall. Your employer will be able to tell you if the impact on recruitment has been considered.
The consultation on proposed changes to SAUL is the responsibility of your employer. All the SAUL Employers should consider whether they are required to conduct an Equality Impact Assessment (EIA) in relation to the proposed changes to SAUL. Your employer will be able to tell you if they have conducted an EIA.
If I were to make a transfer-in to the SAUL scheme from another scheme how would this be impacted by the new changes to SAUL. Under the proposals, members can transfer benefits into SAUL in the same way as before 1 July 2012. Members in both the CARE and final salary sections will receive:
The actuarial assumptions used in calculating benefits secured with transfers-in will differ depending on a member’s Normal Pension Date and the earliest age at which a member can retire without reduction of their benefits. A fixed pension for transfers-in from outside the public sector is being introduced from 1 April 2012. You can find more information about this change here
SAUL conducts audits every year. These check that we calculate members’ pensions benefits correctly.
The Scheme Actuary advises the Trustee on SAUL’s funding position and the possible action required to resolve any shortfall in funding. The actuary has calculated that the cost of providing final salary benefits has increased in recent years. This increase has been due to a combination of improving life expectancy and lower expected investment returns. It is not a question of saving the scheme but ensuring that it remains sustainable and affordable for members and employers while providing attractive benefits. Ultimately is it the responsibility of the SAUL Employers – through the SAUL Negotiating Committee (which has an equal number of representatives from the Employers and the recognised Trade Unions) – to form a plan to deal with the funding shortfall.
I have been informed by my union representative that he has been seeking to obtain a copy of the actuarial report for some time from SAUL. Could you explain why this is the case and state when he will receive this documentation? The last Actuarial Report (as at April 2010) is available on our website here. The 2011 Actuarial Valuation is being prepared and will be available no later than 1 July 2012.
What general circumstances must prevail for the Final Salary model to be maintained or be reintroduced at a later date? The reasons for the change to a CARE scheme for new entrants are two-fold. Firstly the cost of providing Final Salary benefits is increasing. In 1993 the cost of one year of final salary pension for all members was 20.9%. In 2008 that had increased to 25.4%. Whilst the results of the 2011 Actuarial Valuation are not yet confirmed, the indications the Trustee, Employers and Unions have received in the interim are that the 2011 valuation will show another increase in the cost. As the cost increases there is an ever-growing gap between the contributions coming in and the cost of benefits. In 1993 the two were pretty much the same. In 2008 the contributions coming in were 19%, yet the cost of accrual was 24.4% (both of pensionable salaries). To the last valuation the gap between the two had been met by the performance of the investments. However, there comes a point where however well the investments perform, it is not possible for the gap to be bridged in a sustainable way. This leads to a deficit. The 2011 valuation is likely to show that SAUL is in deficit. So if nothing is done the investments will have to meet the gap between the cost of benefit accrual and contributions being paid, and fill the deficit. Because of the widening gap between the cost of accrual and the contributions being paid, and the position that the Employers are unable to increase contributions to SAUL above the current rate of 13%, the benefit structure for new entrants has to change. It is unlikely that position will change in the future.
Can you explain what would happen to the pension of an existing SAUL member, say currently aged 30, who continues to work and pay into the scheme but who then decides to retire at 58? Under the proposals, the only change in your example would be that benefits built up from 1 July 2012 will receive capped increases once the pension starts being paid. You can find out how increases to pensions built up after 1 July 2012 are capped here.
Can you give a breakdown of how much each change in the proposals for both existing and future members is estimated to save? These figures must exist as they would form the basis of any recovery plan submitted to the Pensions Regulator. Resolving the funding shortfall is not a question of how much money could be saved for each change, but how the overall funding position is expected to improve taking into account:
Taking all of this into consideration, under the employers’ original proposals and using the preliminary results of the Actuarial Valuation, SAUL is expected to return to full funding in 2020. The Recovery plan cannot be prepared until after the Actuarial Valuation is prepared (no later than 1 July 2012) and the consultation on proposed changes is concluded and considered. In any case the amount “saved” by each of these individual proposals would not form part of the Recovery Plan. The SAUL Trustee will explain to the Pensions Regulator how it intends to return the Scheme to full funding taking into account considerations listed above. The cost of providing benefits has increased for all pension schemes, not least because of improved life expectancy. Therefore action needs to be taken to ensure that the provision of pension benefits remains sustainable and affordable.
Will you give concrete guarantees that existing members could never be transferred out of the final salary scheme and into the CARE scheme at any point in the future? Final Salary benefits built up by members could not be transferred or converted into CARE benefits in the future because they are protected. It is not possible to guarantee that the final salary benefits could be built up indefinitely because we cannot predict the funding position in the future. There are no plans to make further changes to SAUL because the current proposals aim to tackle the funding shortfall – and ensure the sustainability of SAUL - so that no further changes will be required. Any future changes to SAUL would require the agreement of the Negotiating Committee which is made up of equal representatives of the recognised Trade Unions and Employers.
What has happened to the missing employer contributions to SAUL for the period August 1992 to May 1995? It is important to note that the benefits of deferred members, pensioner members and active members built up to the 1 July 2012 are unaffected by these changes. Thus fluctuations in contribution rates over the years have had no impact upon the benefits members have built up so far.
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