pension help - final salary AVC (USS)

hyubh

Pincher wrote: »

Some food to feed the paranoid.

I know this lecturer, who was lecturing away at a London University, and was forced into early retirement because they wanted to minimise their pension liability,

The USS mostly operates one big grouping mechanism so that every employer pays the same percentage of payroll that all the others do, albeit with slightly different rates for FS and CARE section members. Also, until relatively recently an employer could decide to allow someone to go on an unreduced early pension yet not face a bill from the scheme for doing so. As such, merely going by what you say, I'd think it's more likely that a lack of special pension liability helped get this person out of the door, rather than the existence of one...

dax42

Thanks to all that replied. I'm still not certain what to do. From what I gather here, it is unusual to get inflation adjusted defined benefits, so that's a good thing.
However, if I invested in some pension fund, is it so unlikely that this would keep up with inflation? I know there's a risk but that also comes with the chance of doing better than inflation...

dunroving wrote: »

Re: Your second point, as you will know, AVCs can either be made by a lump sum or a contract for monthly AVCs. Have you considered also setting up a monthly AVC contract before the deadline?

I have considered this. A lump sum calculation was just easier to post here. The only advantage of AVCs that I can see is that any extra contribution now would become inflation-proof (well, to some extent) and fairly secure. Is this my best option though or should I invest in something else instead?

kidmugsy wrote:

Moreover, if you have a reasonable expectation of higher pay in the not-too-distant future by virtue of promotion, I'd consider NOT starting AVC contributions while you are in the final salary section, where your pension rises would be limited to CPI subject to capping, but instead starting them once you are in the CRB section.

Unfortunately this will also be removed! From April 2016 extra contributions will only be possible under the new DC scheme. This isn't 100% clear in the update document from USS, but it says so on their website in the CRB section -> maximising benefits.

kidmugsy

dax42 wrote: »

The only advantage of AVCs that I can see is that any extra contribution now would become inflation-proof (well, to some extent) and fairly secure. Is this my best option though or should I invest in something else instead?

It's not a bad deal: if you tried inflation-proofing with index-linked gilts you'd find that they pay a negative real rate i.e. below the RPI inflation rate. For example, at this moment the 2037 pays 0.84% p.a. below RPI inflation, equating to probably about 0.04% p.a. below CPI inflation over a long haul.

The net contribution less the TFLS will generate an annuity-like income at age 65 of 3.876% p.a., CPI-linked (subject to capping). That's potentially about 3.9% p.a. better than the ILG, though of course the payout is deferred by more than thirty years and the capital is gone; it's up to you to decide whether it will suit you. At least if you contribute monthly you can change your mind whenever you like. At age 33 you may well find yourself confined to DC saving for most of the rest of your career; there might therefore be a diversification advantage in paying the AVC. Tell me, does your employer allow AVC contributions by salary sacrifice: is that already included in your example figures?

My own instinct would be not to pile more money into a scheme in the USS's DB sections' financial plight. Other people might reasonably have a different instinct. At least bung your 1% p.a. into the new DC scheme and harvest the matching employer's 1%. If you find yourself paying higher rate tax, consider opening a personal pension of some sort.

Finally, why not defer a decision until the Chancellor's autumn statement, to see whether he's going to reform pensions some more, in a direction that's in your favour?

atush

If you do go ahead and buy this added pension, do consider in future to open a DC pension alongside. And S&S isas if you dont have them now.

These can help with retiring early, and spending needs later on.