Each of the main sections in this document refers to a specific Fact-sheet which gives you a more detailed explanation.
The need for change
Increased life expectancy and the relatively low investment returns that are expected for the foreseeable future have made OSPS too expensive to be sustainable in its present form. In March 2010 when the scheme's assets were compared with what was needed to cover the costs of the benefits already earned by members, there was a shortfall of £82.4m, an amount which had almost doubled since the valuation in March 2007. The University has provided a guarantee so that there is no immediate danger to your pension, and all employers in the scheme are now paying an unusually high contribution rate of 21.5%. Your contributions have been held at 6.35%, yet the ongoing cost of buying your future pension rights with the present level of benefits has risen and is using up 18.1% from the employers' contribution, leaving just 3.4% to pay down the shortfall. The employers cannot commit to paying more than 21.5%, and at the present rate it will take around 17 years to eliminate the shortfall. To continue in this way would be unwise and is unlikely to be acceptable to the scheme's Trustees.
We are therefore looking for changes that will give a reduction in the future costs of providing your pension equivalent to reducing the employers’ contribution by 4%. This will make the cost of future provision similar to that in other pension schemes that provide a comparable level of benefits. The employers, however, will not use this saving to reduce their contribution but will maintain their present level of contribution so as to pay down the shortfall in the fund sooner than would otherwise have been possible.
For more information, see Fact-sheet 1: The Health of your Pension
How your pension works now
OSPS is a defined benefit scheme, which means your pension is based on your salary and how long you have been a member. On retirement, you get a pension and a tax-free lump sum of three-times your pension. If you have paid into the scheme for 40 years, your pension will be 50% of your final salary; or 25% if you have paid into the scheme for 20 years, and so on in proportion to your length of service. Your pension goes up by inflation (RPI) every year. You are also entitled to other benefits, for instance, for your dependants if you die in service before retiring.
If you change your job, you can either take your pension with you to a new scheme or leave it in OSPS, as many do, and collect a pension later – in which case we protect the pension you have earned against inflation (again, using RPI).
For more information, see Fact-sheet 2: How your pension works
What matters to OSPS members
There is more than one way to make the 4% savings. The best way will depend on what matters most to scheme members. People at different stages of life will want different things, so the revised scheme will offer some choices.
The Review Group believe that the following are the most important features of the OSPS membership:
- OSPS members have relatively low salaries and therefore modest pensions. Once they have retired, they need good protection from inflation eroding the value of their pensions.
- Very many of those who join OSPS work at Oxford for a short period before moving on. This is especially true of young people and is also relevant to women who often have breaks in their employment. Those members often leave their pension in the scheme, sometimes for a considerable time before they retire and can draw it, and it is important that their ‘deferred pensions’ are protected against inflation.
- For some people, OSPS is too expensive to join, and so it is important to avoid any change that would require a significant increase in the members' contribution rate.
For more information, see Fact-sheet 3: Who is in OSPS?
Our commitment to you
The scheme will be kept open and will remain a defined benefit scheme, which means that your pension will remain based on your salary and how long you have been a member – we are not asking you to accept the uncertainty of a pension dependent on market interest rates.
The pension you have already earned will not be changed, and the tax-free lump sum due to you on retirement will be kept at three-times your annual pension. The changes to be introduced next year will only relate to future service, that is, the years in which you pay contributions to OSPS after the changes are made. This means that members who are currently working and paying contributions will get a mix of old and revised benefits when they retire. Those who have been members for longest will therefore be least affected by any change introduced now.
There will, however, need to be changes in how your pension is calculated and these will cause some reduction in your future benefits. The changes proposed here are designed around you: they are intended to reflect the actual needs of the members, young or old, long-term or not. In particular, we are suggesting options which will give your pension the same protection against inflation that you currently enjoy and which will require only a very small increase in your contributions. This will necessarily involve basing your pension on your average salary rather than your final salary, and your pension will take longer to build up.
However, we are offering you options that will enable you to build your pension faster and to save for a bigger pension if you wish, according to your personal circumstances. We are also suggesting one option which provides for a reduction in your contribution rate, which might be attractive to those who currently feel they cannot afford to join the scheme.
This document refers in a number of places to USS, the pension scheme normally used by academic and academic-related staff in the University. We are committed to keeping the benefits in OSPS broadly equivalent to those in USS, not only because of a desire to treat our two groups of employees fairly, but also bearing in mind that employees are sometimes required to move from OSPS to USS as a result of promotion.
For more information, see Fact-sheet 4: The employers’ commitment