Pension speculation

In providing a maximum pension of half of one's final salary, plus a tax-free lump of three times salary, the USS is providing benefits that are broadly equivalent to a pension of two-thirds of salary.

Many private schemes have a pension accrual rate of sixtieths, which provides after 40 years of service a pension of two-thirds. These cannot, however, provide a lump sum in addition as to do so would exceed Inland Revenue limits. Tax-free cash can be obtained only by commutation, that is by giving up pension income.

Schemes that accrue in sixtieths provide significantly better spouses' and dependants' benefits, as these are calculated as fractions of two-thirds rather than fractions of a half and it is for this reason that the USS regards moving to a sixtieth accrual as expensive.

Kathy Elridge Head of payroll and pensions University of Oxford