USS "Investment Builder" query

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PeskyBlunder
PeskyBlunder Posts: 83 Forumite
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in Pensions, annuities & retirement planning
I hope to retire at some point next year.

I am a member of USS and I was thinking about paying another 69% of
my salary into the new "Investment Builder" section of the scheme -
this should reduce my taxable salary to a level where I would not
pay any tax. Because of the short time frame until I retire I would
be investing my payments into the cash fund under the "let me do it"
option. I would be drawing on savings to supplement my salary until
I retire. This should save me about £560 in tax and with the extra 1%
matched by my employer I would be saving about an extra £600 a month
in total. My intention would be to take only the Investment Builder
pot as a lump sum and take the maximum pension from the old final
salary scheme and the new Retirement Income Builder section.

Can anybody see any flaws in this idea?

Comments

  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    I'm out of touch with the detail of USS in its new guises. That said, as long as you are happy to gamble on the survival of the final salary pension your plan seems a pretty good idea to me.

    At least the chumps running USS finally admitted that the FS pension scheme was unsustainable, and acted to rescue it, so your gamble may well succeed.
    Free the dunston one next time too.
  • quotememiserable
    quotememiserable Posts: 590 Forumite
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    Gamble on FS scheme surviving? No gamble there, OP is close to retirement and his earned years stay earned.
    PeskyBlunder: You'll only be able to take the first 25% of the pot tax free, because you aren't allowed to treat the two pensions as one provision and take all the lump sum from the DC side. Nevertheless, it's a great plan, saving you masses of tax. You just take 25% from it tax free, and draw the rest down strategically to keep you inside your most favourable tax band. While it's in there, you can choose what fund(s) to be invested in.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    quotememiserable wrote: »
    Gamble on FS scheme surviving? No gamble there, OP is close to retirement and his earned years stay earned.

    Of course it's a gamble. If USS hadn't been at risk of ending up in the soup they'd not have closed the FS section. Anyone who thinks that you can't lose because of the PPF can't have read the PPF's terms.
    Free the dunston one next time too.
  • Jack's_mum
    Jack's_mum Posts: 2 Newbie
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    I'm not sure the point about the 25% cash limit on the USS investment builder pot is correct. I understood it is still possible to take up to 25% of the entire USS pension fund (including Prudential AVC and new investment builder) as cash. Putting funds into investment builder in the cash fund as described sounds appropriate to me but I'm not an expert. Would be good to get confirmation that taking 25% of entire USS pot as cash (similar to LGPS) is still possible despite recent changes.
  • DorsetLad
    DorsetLad Posts: 55 Forumite
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    Hello, first-time poster here, although I have been reading this forum for some time (and have learned a lot from it!). I am not a pensions professional but I am a USS member who moved to semi-retirement (working 50% of time) last October. This is from the current USS website:

    When presented with your options at retirement, your former final salary benefits and USS Retirement Income Builder benefits will be combined and shown as an annual pension plus the tax free lump sum. Options for the separate USS Investment Builder contributions will include the ability to draw it tax free as a lump sum if it is within 25% of the lifetime allowance value of your pension savings.

    So, Pesky, it seems probable that your Investment Builder pot can indeed be taken fully as a lump sum. In fact, you may have more flexibility than this if you want. I had contributed to a Prudential AVC and when I asked USS (via my university's pensions office) for a pension statement before I moved to semi-retirement, USS quoted me options that included taking the full LS equal to 25% of the total value of my pension (i.e. LS = AVC plus some from USS pension), no LS (i.e. AVC all converted to pension), and a third one in between. I got the impression that other proportions could be asked for. Hopefully it is still the same now.

    So, your plan is tax-efficient and feasible, in my opinion. However, I think that you will not get to the point of paying zero tax, because the university is not allowed to pay you a salary less than the living wage (about £13100 p.a.), so you will still pay basic rate tax on the difference between this and your personal allowance (£11000+). Another point to remember is the £40,000 annual allowance for pension contributions (from employee and employer); contributions above this don't qualify for tax relief.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    DorsetLad wrote: »
    Another point to remember is the £40,000 annual allowance for pension contributions (from employee and employer); contributions above this don't qualify for tax relief.

    It's worth looking at the rules on carrying forward unused annual allowance from the previous three years.
    Free the dunston one next time too.
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