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PensionsExchange Factsheet

Following consultation with its trade unions, UCL is introducing PensionsExchange to employees in USS or SAUL pension schemes in May 2010. PensionsExchange operates by allowing savings in National Insurance Contributions (NIC) through changing the way that pension contributions are paid. Other universities such as Oxford, Cambridge, the LSE and Imperial College have already successfully implemented such a scheme. This Factsheet covers the benefits to you and outlines how the scheme works. Further information including a set of Frequently Asked Questions can be found in the Employee Guide available on the UCL Pension Services website or by contacting UCL Pension Services.

Why is UCL introducing PensionsExchange?

The USS and SAUL rules have changed to allow additional pension contributions to be made by the employer under a PensionsExchange scheme. Employee pension contributions will be reduced to nil and as a result, the employee’s take home pay in most cases will increase. The amount saved depends on the employee’s earnings level. The table below provides an indication of the annual NIC savings available to the employee:

SAUL (6%)

USS (6.35%)

Annual Salary (£) Annual Employee NIC saving (£)* Annual Salary (£) Annual Employee NIC saving (£)*

15,000

84.60

35,000

208.91

20,000

112.80

40,000

238.76

25,000

141.00

45,000 (i)

201.82

30,000

169.20

50,000 (i)

31.75

35,000

197.40

55,000 (i)

34.92

* These savings are based on tax and NIC rates for 2010/11. Individual examples have been provided below.

As you will see from the table above, NIC savings are proportionately lower for higher earners. This is because the rate at which NIC is paid (and therefore saved under PensionsExchange) reduces to 1% for earnings over the NIC Upper Earnings Limit (£43,875 per annum for 2010/11). It is expected that from 2011/2012 this rate will change to 2%, increasing the level of savings for higher earners using PensionsExchange.

Through implementing PensionsExchange UCL will also benefit from paying lower employers’ National Insurance Contributions. These savings will be used to enhance the working environment for staff and to meet the rising cost of pension provision which increases each year in line with UCL’s salary bill.

How does PensionsExchange work?

Step 1 From 1 May 2010, you will stop making standard pension contributions from your Basic Salary to the USS or SAUL.
Step 2 Instead UCL will make contributions to the USS or SAUL equal to the contributions previously made by you, along with its employer contribution.
Step 3 Your Basic Salary will reduce by the amount that you previously paid into the USS or SAUL. Your unreduced salary will be known as your ‘Reference salary’.
Step 4 Your take home pay will increase because you are paying a lower National Insurance Contribution (NIC). This is as pension contributions that you previously paid were subject to NIC whereas the employer contribution paid by UCL is not.
Step 5 The level of benefits from your USS or SAUL pension will not be affected. The salary used in calculating payments such as pay rises, overtime etc will not be affected as this will be based on your reference salary.

SAUL: Example 1

The example below highlights the pre and post PensionsExchange position of an employee earning £18,000 per year and contributing £1,080 (6% of Pensionable Salary) per year into SAUL. Under PensionsExchange the employee's ‘Reference Salary' remains at £18,000 although the Adjusted Salary becomes £16,920.

Pre PensionsExchange

Post PensionsExchange

Basic Salary

£18,000.00

Reference Salary

£18,000.00

Less PensionContributions

(£1,080.00)

Less PensionsExchange Adjustment

(£1,080.00)

Adjusted Salary

£16,920.00

Less Income Tax

(£2,089.00)

Less Income Tax

(£2,089.00)

Less NIC

(£1,144.05)

Less NIC

(£1,042.53)

Net Take Home Pay

£13,686.95

Net Take Home Pay

£13,788.47

The employee's net take-home pay has increased by £101.52 per annum from £13,686.95 to £13,788.47. and the total contributions to SAUL have remained the same.

USS: Example 2

The example below highlights the pre and post PensionsExchange position of an employee earning £33,000 per year and contributing £2,095.50 (6.35% of Pensionable Salary) per year into USS. Under PensionsExchange the employee's 'Reference Salary' remains at £33,000 although the Adjusted Salary becomes £30,904.50.

Pre PensionsExchange

Post PensionsExchange

Basic Salary

£33,000.00

Reference Salary

£33,000.00

Less Pension Contributions

(£2,095.50)

Less PensionsExchange Adjustment

(£2,095.00)

Adjusted Salary

£30,904.50

Less Income Tax

(£4,885.90)

Less Income Tax

(£4,885.90)

Less NIC

(£2,554.05)

Less NIC

(£2,357.08)

Net Take Home Pay

£23,464.55

Net Take Home Pay

£23,661.52

The employee's net take-home pay has increased by £196.97 per annum from £23,464.55 to £23,661.52 and the total contributions to USS have remained the same.

Note: All savings illustrated are based on 2010/2011 tax and NIC rates.

How do I take part?

Any member of the USS or SAUL pension schemes who will be no worse off as a result of taking part in PensionsExchange will be automatically included in the PensionsExchange scheme from 1 May 2010. However as PensionsExchange is an entirely voluntary arrangement, if you wish not to participate, you can choose to opt out by contacting Pension Services and requesting an opt out form.

There are a few limited circumstances in which PensionsExchange will be unfavourable for UCL staff. If you fall into one of these limited circumstances, you do not need to take any action as you will be notified separately, and will not be automatically included in the PensionsExchange scheme.

For further information please visit the UCL Pensions Services website www.ucl.ac.uk/hr/pensions or contact Pension Services via e-mail pensions@ucl.ac.uk or by phoning 020 7679 1622 (41622)