No 6460
Wednesday 22 March 2017
Vol cxlvii No 26
pp. 407–442
The Council and the General Board beg leave to report to the University as follows:
1. The University's pension schemes are a critical element of the reward offering, allowing the University to attract and retain the most talented employees from around the world.
2. Changes to pension taxation have meant that pension benefits earned in a single year or over a working lifetime that exceed the Annual Allowance or Lifetime Allowance can lead to excess tax charges. These charges can make pension benefits a potentially unattractive means of attracting and retaining staff.
3. A number of major peer institutions have therefore adopted an alternative remuneration benefit whereby staff affected can opt out of their pension scheme and accept a salary supplement, in order to remain competitive within the external market.
4. The Universities Superannuation Scheme (USS) has, for its part, introduced various voluntary amendments to help affected members address the high tax charges on benefits, including an 'enhanced opt-out' and a 'voluntary salary cap'. These can be used in conjunction with a salary supplement in lieu of pension, to enable those who choose to opt out of the scheme and accept a salary supplement to maintain their death-in-service and ill-health provision.
5. A report was commissioned from the University’s independent pension advisors, Xafinity, to ascertain the amount of salary which it would advise should be paid to staff in the USS which, after taking any other relevant factors into account, would (a) minimize the impact on the attraction and retention of staff, and (b) be cost-neutral to the University when compared to the payment of employer’s pension contributions. Xafinity have advised that currently a salary supplement of 12% to affected members of USS would meet both these objectives. Detailed calculations are being undertaken to establish the appropriate figure for those in the Cambridge University Assistants' Contributory Pension Scheme (CPS) and other schemes administered by the University but, as the contributions currently being made to these schemes are lower than those to USS, the proposed supplement in these cases would also be lower. The actual amount of any salary supplement payable to eligible employees would be reviewed and amended to reflect variations in contribution rates to ensure that the supplement remained cost neutral to the University. The Finance Committee’s Business Sub-Committee has agreed in principle to the payment of salary supplements on this basis, subject to approval of the proposals set out in this Report. The Human Resources Committee approved these proposals on 26 January 2017.
6. The CPS does not contain an enhanced opt-out option to enable employees to retain death-in-service and incapacity benefits, and accordingly eligible staff would need to consider this before deciding whether to accept a salary supplement in lieu of participation in the pension scheme.
7. Consideration has been given to whether the eligibility criteria should be broadened beyond those affected by the pension tax changes, to include any member of staff from any pension scheme who wishes to sacrifice their pension arrangements for a cash alternative. There is no legal requirement to do so. While the measure could be seen as more likely to favour older, male staff, the Council and the General Board consider that it represents a proportionate means of meeting a legitimate aim which would be permitted under the Equality Act, particularly when the implications of extending the measure to all staff are fully considered.
8. The Pensions Act 2008 prohibits employers from offering employees an inducement to opt out of pension provision, where the 'sole or main purpose' of that inducement is to encourage employees to opt out of or leave their current pension scheme. To avoid any risk either of challenge by the Pensions Regulator, or of claims in the future from staff who opt out of their pension scheme without understanding the full implications of doing so (or from dependants of such staff), the Council and the General Board consider that the University should not extend the scheme to all staff until it has satisfied itself that there are clear and positive reasons for doing so. The University should consider why this is an appropriate way forward for the benefit of those staff, who would lose the tax benefits of participation in the scheme were they to take the salary supplement. The University should also satisfy itself that staff who might opt to take the salary supplement are likely fully to understand the long-term implications of doing so and to make suitable alternative provision for themselves and their families as regards pension, death-in-service, and other benefits associated with pension scheme membership.
9. The University would also need to take soundings from the USS Trustees as to their reaction to extending the measure to all staff. The Trustees have a wide discretion to treat a university as having left the USS should they consider that it is not in the scheme’s interests to continue its membership, triggering a substantial financial liability. It would be important to understand fully the implications for the University’s continued membership of the USS should a large number of staff opt to take a salary supplement, before the option could be offered to all staff.
10. The Council and the General Board consider there are cogent reasons why a salary supplement should be made available now to those unable to participate in a pension scheme without suffering adverse tax consequences, if the University is to remain competitive with other institutions. It is proposed that this measure would be backdated to the date at which the member of staff affected ceased their participation in a pension scheme, which at the earliest would be April 2016. For the moment, however, they consider that no steps should be taken to extend the offer of a salary supplement to all staff, but have instructed that fuller consideration of this possibility be added to the remit of the Remuneration Working Group which was established by the Human Resources Committee in October 2016.
11. In light of the above considerations, the Council and the General Board recommend that the regulations for Payments Additional to Stipend (Statutes and Ordinances, p. 669) be amended by the addition of a new Regulation 12 as follows:
12. The competent authority shall have the power to establish procedures for, and authorize, with effect from 6 April 2016, the payment of additional non-pensionable payments as salary supplements to any member of the University staff who can demonstrate that they cannot participate in a pension scheme to which the University would otherwise contribute on their behalf without exceeding the lifetime or annual allowance specified by Her Majesty's Revenue and Customs for such participation.
And that thereafter the Council and the General Board put in place detailed arrangements for the making available of such supplements for eligible employees.
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20 March 2017 |
L. K. Borysiewicz, Vice-Chancellor |
Umang Khandelwal |
John Shakeshaft |
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Chad Allen |
Stuart Laing |
Sara Weller |
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Richard Anthony |
Mark Lewisohn |
I. H. White |
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R. Charles |
Susan Oosthuizen |
Mark Wormald |
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Amatey Doku |
Michael Proctor |
Jocelyn Wyburd |
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Nicholas Gay |
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15 March 2017 |
L. K. Borysiewicz, Vice-Chancellor |
David Good |
Richard Prager |
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Chad Allen |
A. L. Greer |
Helen Thompson |
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Philip Allmendinger |
Patrick Maxwell |
Graham Virgo |
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Abigail Fowden |
Martin Millett |
Mark Wormald |