OSPS 2017 Consultation Frequently Asked Questions

Welcome to the Frequently Asked Questions page for the OSPS 2017 Consultation. We're collected questions we received through the course of the consultation.

How do I currently contribute to my pension?

The University of Oxford Staff Pension Scheme (OSPS) is a ‘defined benefit’ scheme. This means that if you are eligible and if you are enrolled, the scheme will pay you a certain amount every year from when you retire to when you die. This money comes from both what you have contributed in the course of your working life in the scheme, but also from what your employer has contributed. This money, along with the pension contributions from everyone else who is enrolled in the scheme, and all the employer contributions, goes into a pension fund, which is then carefully invested.  There are extra benefits as well, which are discussed below.

You can choose between three cost plans; Lower, Standard and Higher. They have different contribution rates and build up benefits at different rates:

Cost Plan

Contribution Rate

Accrual Rate

Lower

5.6%

1/90

Standard

6.6%

1/85

Higher

7.8%

1/80

When you enrolled, if you didn’t specify which plan you want, you’ll have been automatically enrolled into the ‘standard’ plan.

In addition to this, your employer (the University or one of the participating colleges or other employers), supports the scheme by paying a significant contribution to the scheme. The level of employer contributions is decided as part of the scheme valuation which takes places every three years. As at August 2016 the employer pays 23% of your pensionable salary each year in contributions.

The University and some colleges use salary sacrifice (also known as Salary Exchange) for employee contributions. If you are in Salary Exchange your employer pays your pension contributions and reduces your pay by the same amount so saving National Insurance costs for you and your employer.

Your OSPS pension will be in addition to your State Pension..

Why are these changes happening?

There are two main reasons why the scheme needs to change:

  1. Without any changes to the current structure it is likely that the total contribution from employers would need to increase to over 30% of pensionable salaries (currently 23%) which is unsustainable; and
  2. The recent changes to the State Pension has increased the employer's National Insurance contribution by around 2.5% per year.

Further detail on each of these points is set out below.

The scheme wants to be able to keep its promise to its active members and to its current and future pensioners, of paying a defined amount to people after their retirement until they die. There are a number of risks involved with running this kind of pension scheme, known as a defined benefit scheme. In particular, the cost of providing defined benefit pensions has increased considerably. For the OSPS, this is largely because of lower-than-expected future investment returns. The assets are kept in very safe investments such as government bonds and shares in stable and reliable companies, but the global economy has done less well in the last few years, with investment growth not keeping pace with the growth of the liabilities.

Following the 2013 valuation the University and colleges agreed to a series of annual increases in their contributions from 21.5% of your pensionable salary in 2014 to 23.5% by 2017. The employers’ current contribution rate to the scheme is 23% of members’ pensionable salaries per year. The agreement to these incremental increases was a temporary measure until a comprehensive benefit review could be carried out. 

In addition, recent State pension changes increased the employers’ National Insurance contribution by around 2.5% per year. This is because the new single-tier State pension (introduced on 6 April 2016) replaced the Basic and Additional State pensions, which ended the option to ‘contract-out’ of the Additional State pension.

Contracting-out meant that employers and employees could pay a reduced level of National Insurance. The OSPS was contracted-out, so members and the employers were paying National Insurance at a lower rate up to 5 April 2016. The increased cost to the employers is a significant expense.

As a result of the changes to the State Pension, most OSPS members will now receive a higher State Pension as they are no longer able to contract out of the additional State Pension. When planning for your retirement you will need to consider both the OSPS Pension and the State Pension.

The 2014 and 2015 funding updates show that there was an estimated increase in the scheme’s deficit to around £213 million, up from £173 million in 2013. This represents an increase of around 23%.

To calculate how much the University and other employers will have to pay to the Scheme, the OSPS Trustee has started work on the 2016 actuarial valuation. This will take time to complete, but provisional indications are that the scheme’s deficit has grown in line with the funding updates referred to above.

To reduce the funding deficit and to continue the current structure of the OSPS without any change, the total contribution from employers would need to increase to over 30% of pensionable salaries. This level of contributions, together with the increase in employer National Insurance contributions since April 2016, is unsustainable.

I joined the scheme before 1 February 2013, how would the proposed changes affect me?

The proposed changes would affect you in several ways:

  • Breaking the final salary link (only relevant to members who joined before 1 January 2013) - Your benefits that were based on your final salary (i.e. the benefits built up on your service before 1 January 2013) would no longer be calculated using your final salary.  From April 2018 these benefits would be revalued in line the average of CPI/RPI.
  • Inflation protection before you draw your pension - All benefits built up from 1 April 2018 would be revalued in line with CPI, capped at 5% per year (instead of RPI capped at 8% per year). Your benefits built up in the CARE section between 1 January 2013 and 31 March 2018 would continue to increase in line with RPI, capped at 8% per year.
  • Inflation protection after you retire – Your final salary benefits would increase by the average of CPI/RPI (instead of RPI), your CARE benefits built up between 1 January 2013 and 31 March 2018 would increase by the average of CPI/RPI, capped at 8% per year (instead of RPI capped at 8% per year) and your CARE benefits built up after 1 April 2018 would increase by CPI, capped at 5% per year (instead of RPI capped at 8% per year).
  • Pay higher contributions to build up pension at the same rate (Package A) or pay the same contribution to build up pension more slowly (Package B) – depending on the outcome of the consultation one of these packages would be applied to all active members.

I joined the scheme after 1 February 2013, how would the proposed changes affect me?

  • Inflation protection before you draw your pension and after you retire - Your benefits built up in the CARE section between the date you joined and 31 March 2018 would increase in line with the average of CPI/RPI, capped at 8% per year (instead of RPI capped at 8% per year).  All benefits built up from 1 April 2018 would increase in line with CPI, capped at 5% per year (instead of RPI capped at 8% per year).
  • Pay higher contributions to build up pension at the same rate (Package A) or pay the same contribution to build up pension more slowly (Package B) – depending on the outcome of the consultation one of these packages would be applied to all active members.
  • If you have transferred in benefits to OSPS from another “public sector transfer club” employer – these transferred in benefits are linked to your final salary and this final salary link would be broken on 1 April 2018. From April 2018 these benefits would be revalued in line the average of CPI/RPI.

In the proposal, the employers’ contribution decreases from 21.5% to 19%. Why?

In April 2016 the Government introduced the single tier State Pension, replacing the basic State Pension and the additional State Pension and ended the option of contracting out of the additional State Pension.  Before April 2016 OSPS was contracted out of the additional State Pension.  This meant that you and your employers paid National Insurance at a lower rate and you built up pension in OSPS, rather than the additional State Pension.  Since April 2016 OSPS employers have borne the higher National Insurance costs as a temporary measure whilst the review of OSPS benefits was being carefully considered.  The overall increase in employer National Insurance from 1 April 2016 was 2.5% of salaries.  The Government allowed employers with private sector defined benefit pension schemes such as OSPS to make amendments to their pension arrangements to offset the increase in National Insurance contributions.  The proposal is to reduce the employers’ contributions by 2.5% (21.5% less 2.5% = 19%) to take into account the introduction of the single tier State Pension and the end of contracting out. 

What are the options for people who are eligible for the OSPS pension, but who have opted out?

You may re-join OSPS if your employer allows it.  You should ask your employer pension contact about this (if you are a University employee, the University does allow you to re-join OSPS).  If you join OSPS before September 2017 you will be in the CARE section and the proposed changes would affect your benefits.  If you join after 1 October 2017, under the proposal you would join the new defined contribution section of the scheme.

Is the Defined Contribution offer for people who enrol after 1 October 2017 also open to current scheme members?

At the moment there are no plans to allow members in the CARE section to move to the defined contribution section but the matter may be reviewed after the defined contribution section is operational.

What’s the difference between RPI and CPI?

RPI stands for Retail Prices Index and CPI stands for Consumer Prices Index. They both use a theoretical basket of goods to monitor how much you get for your money, but what each index puts in that basket is different. RPI includes the cost of housing (mortgage repayments and council tax, for example) whereas CPI does not. For more information, see http://inflationmatters.com/cpi-vs-rpi/

What have the RPI and CPI rates looked like in the past?

This chart compares the RPI and the CPI rates from 1997 to 2016.

 

Why are we moving away from RPI?

Historically RPI was the most familiar general purpose measure of inflation in the UK.  In 2013 its status as a National Statistic was withdrawn as it did not meet current international standards. 

From April 2011 the Government used CPI to index many State benefits, tax credits and public service pensions.  Many pension schemes (including USS, the pension scheme for the University’s and Colleges’ academics) no longer use RPI as their inflation measure as pension increases are increased in line with public service pensions.

Why are we using the average of CPI and RPI?

In the review of the benefit structure it was initially suggested that the inflation measure used switched from RPI to CPI.  In discussions between the OSPS Trustee and the employers it was agreed that the “savings” that would be achieved by switching to CPI would be shared between the employers and the scheme members so an average of RPI and CPI is proposed as part of the package of changes.

What about all the other benefits that come with my OSPS pension?

Under the proposals  there are no changes to the underlying formula used to calculate other benefits e.g. dependant’s pension, death in service lump sum and ill health retirement.  Dependant’s pensions and ill health pensions will continue to be based on the pension benefits you have built up. Inflation proofing for any ill health pension or dependant’s pension would be the same as applied to your pension benefits. 

I’m a pensioner, how do the proposed changes affect me?

As part of the review the Employers have asked that the OSPS Trustee considers the index used to revalue benefits and to increase pensions in payment and this will affect you if changed.

In the past, increases to pensions in payment were calculated based on the annual increase in the Retail Prices Index (RPI).  It is proposed to change this from 1 April 2017 so that in future, increases will be calculated based on the average of the annual increase in the RPI and the annual increase in the Consumer Prices Index (CPI) over the same period.  The Trustee is considering this proposal, together with the proposed changes for current and future employees.  Should the proposal to amend the cost of living index go ahead you will be notified in the letter about your annual increase in April 2017. 

The chart below illustrates the effect on the level of pension for different inflation increases.

 

I’m a deferred member, how do the changes affect me?

As part of the review the Employers have asked that the OSPS Trustee considers the index used to revalue benefits and to increase pensions in payment and this would affect you if changed. 

In the past, increases in benefits before coming into payment and increases to pensions in payment were calculated based on the annual increase in the Retail Prices Index (RPI).  It is proposed to change this from 1 April 2017 so that in future the increases will be based on the average of the annual increase in the RPI and the annual increase in the Consumer Prices Index (CPI) over the same period.  The Trustee is considering this proposal, together with the proposed changes for current and future employees.  Should the proposal to amend the cost of living index go ahead you will be notified in summer 2017 with your annual benefit statement.

What’s a salary sacrifice?

Salary sacrifice (also known as Salary Exchange) is an arrangement set up by employers to save and reduce your income tax and National Insurance.  Not all employers with members in OSPS operate salary sacrifice.  You should ask your employer’s OSPS contact if it does.  The University does operate salary sacrifice for OSPS members, see http://www.admin.ox.ac.uk/finance/epp/payroll/salaryexchange/

How do these changes affect my AVC?

Members of OSPS may pay different types of Additional Voluntary Contributions (AVCs) and the option currently remains under the proposed changes:

  • CARE AVCs: you currently can buy additional CARE pension by contributing up to an additional 15% of your pensionable salary.  When you retire this will be added to your other benefits in the scheme.  The inflation increases applied to your CARE AVCs pension would be the same as applied to your main pension benefits.  This option is under review and may close in the future.
  • Money Purchase AVCs: This option allows you to pay AVCs into a separate fund which you can use to buy additional benefits when you retire. The money purchase AVC fund is not affected by the proposals.

Added Years AVCs – for members who elected to pay AVCs to buy added years of pensionable service before 31 December 2012, these benefits would continue to be calculated based on your final salary.  For this part of your scheme benefits the final salary link would not be broken. From April 2018 these benefits would be revalued in line the average of CPI/RPI.

How would my final pensionable salary be calculated at 31 March 2018?

Your final pensionable salary is based on your pensionable salary in the 12 months before 1 April 2018 (or if higher, your pensionable salary for any 12 consecutive months during the five years immediately before 1 April 2018).

What would happen if the deficit gets better or worse?

Every three years the OSPS actuary checks the financial health of the scheme and assesses the funding level.  It is not possible to say now what would happen if the level of the deficit changed.  The position is monitored by the OSPS Trustee and employers.  If the proposed changes are implemented the intention is to continue with the revised benefit structure in the future but this can’t be guaranteed. 

None of us can predict the future and it may be that significant changes, for better or for worse, outside the scheme's control will create the need or provide opportunities for further review of the scheme. As and when that happens, there will be full consultation with members about any proposals for change.

What happens if I prefer Package B, but the final decision goes in favour of Package A?

Whichever package is finally chosen, that package will apply to every member of OSPS. So, if you prefer Package B, but Package A is chosen, Package A will apply to you. The same is true if package B is chosen — everyone, including those who preferred Package A, will go forward with Package B from 1 April 2018. Your other option, of course, is to leave the scheme, but you would want to give that careful consideration before making your decision. If you wish to leave the scheme we suggest speaking to an Independent Financial Advisor before making any decision.

How often will I be able to move between cost plan options? Do the same timings apply to both package A and Package B?

Once we know whether OSPS will implement package A or package B from 1 April 2018, we will write to you with more information.  As is currently the case you will be able to choose once a year which cost plan you wish to have for the following scheme year from April to March: Lower, Standard or Higher.  Whichever plan you chose will be the one you are on for the following year from 1 April.

How would the proposed changes affect the pension my partner will get if I die after taking my pension?

The formula used to calculate any dependant’s pension is unchanged and will be based on the benefits you have built up to the date of your death. The inflation proofing for any dependant’s pension would be adjusted in the same way as applied to your pension benefits.

How would the proposed changes affect the lump sum payment to my dependant if I die before taking my pension?

Under the proposals there would be no change to the cash sum of three times your pensionable salary at the date you died.

I work for the University and I am currently in grade 5, what happens if I am regraded to grade 6 after the proposed changes to OSPS are implemented?

As now, if you are promoted to grade 6 you would be moved to the Universities Superannuation Scheme (USS), the pension scheme appropriate to grade 6.  You would be treated as leaving active membership of OSPS.  You would have a choice on what you do with the benefits you have built up in OSPS. 

Can the Pensions team provide me with a personal quote to show me how the various packages and options in the OSPS 2017 Consultation document would affect me personally?

Unfortunately it is not possible for the Pensions Office to provide personalised quotations for everyone, as this consultation involves thousands of individuals. They are prioritising their efforts on those members of OSPS who are due to reach the normal pension age (currently age 65) before 31 March 2018. These members may ask for quotations in the usual way.

Other members whose retirement is not so imminent can either be guided by the illustrations in the consultation booklet, or make use of the 'change modeller' that is being developed and will be on the OSPS consultation website shortly. These will give a general indication of the effect of the changes on your pension, but are not intended to be, and must not be relied on as, an accurate pension quotation. Please read carefully the notes and cautions that accompany the modeller.  When using the modeler it would be helpful if you had your 2016 annual benefit statement to hand. 

If you do not have access to the University website, please ask someone who does ­such as your departmental or college OSPS contact point — to run the model for you.

I work for the University and am currently a grade 6 but remained in OSPS following the assimilation exercise in 2006. Can I join USS now? What happens if I am regraded or promoted into a higher grade after 1 April 2017?

You may choose to join USS.  Before you decide to move across to USS you would need to compare the benefits currently provided by USS and contributions payable to USS with those in OSPS.  If you are regraded or promoted, you would be moved to the scheme appropriate to the grade.  Details are in the University’s pension policy http://www.admin.ox.ac.uk/finance/epp/pensions/pensionspolicy/

Will the final salary break make me better or worse off?

Not necessarily – it really depends on the individual, their earnings throughout their time with the Scheme, and the increases in those earnings relative to CPI/RPI increases.

What’s the impact of these proposed changes on the age at which I can retire?

There’s no change to the age at which you can draw your pension.

There is no normal or fixed age at which support staff employed at the University have to retire. However, for the purposes of calculating certain benefits, the OSPS rules define normal retirement date as your 65th birthday for final salary benefits and for CARE benefits it is the later of age 65 and your State Pension Age (or your birthday which precedes it, if it does not fall on your birthday).

If you retire before the Scheme’s normal retirement date your pension and cash sum will be reduced to reflect the fact that they are paid early and might be paid longer as result.

In the examples in the consultation document, why was an annual salary increase of 3% applied?

Our actuaries worked out these examples for us. The annual 3% increase in salary incorporates cost of living increases, and the annual increase up the salary increments that happens every year as people progress up the salary scales. 

After implementation in April 2018, will there be any other changes at the next actuarial valuation in 2019?

Regarding future benefit changes in the near term, the University hopes that these proposed changes will be sustainable.  The aim is to continue with the proposed changed benefit structure into the future.  The University will continue to monitor the position closely and it would be unfortunate if further benefit changes were to be considered at the time of the 2019 valuation, but if there was a significant deterioration in the Scheme’s funding position changes could not be ruled out.  We will need more time to see if changes are successful in reducing the Scheme’s deficit as expected.

Whichever package is chosen, can I put more than the maximum in?

You can pay additional voluntary contributions (AVCs) to increase the benefits you will receive when you retire.  AVCs benefit from income tax relief in the same way as normal scheme contributions.  More detail can be found at http://www.admin.ox.ac.uk/finance/epp/pensions/schemes/osps/members/transfers_payments/

I worked part time in the mid 1990s and did not join the scheme – can I now pay in to buy back that service?

It is no longer possible to buy back benefits for any part time working. 

Will the deficit reduce as a result of the break in final salary link and the switch in index to the average of CPI and RPI?

Preliminary estimates show that the deficit reduction achieved by implementing the break in final salary link would be in the region of £25m and the combined deficit reduction with breaking final salary link and switching to average RPI/CPI for indexation is around £57m.

What assumptions are factored into the actuarial valuation for members’ post code and salary?

The scheme trustee reviewed the impact of post code and salary at the last valuation but agreed that it would not factor these into the results.

Where can I find out my State Pension age and more about the Single tier state pension?

https://www.gov.uk/state-pension-age allows you to check when you’ll reach State Pension age.  State Pension age is progressively increasing to age 68.  https://www.gov.uk/new-state-pension gives information on the new State Pension.

Who can I contact if I have more questions?

If you have questions about the consultation, you can email us at ospsconsultation@admin.ox.ac.uk

If you have any general questions about your benefits, please contact the University’s Pensions Office at:

  • Email: osps@admin.ox.ac.uk
  • Phone: 01865 (6) 16133
  • Or write to: OSPS Office, Finance Division, University of Oxford, 6 Worcester Street, Oxford, OX1 2BX.

You can also speak to your union representatives:

Where can I find more information?

More information about OSPS

The new state pension

New state pension check