USS Investment Builder

swindiff

Have searched on USS website but can seem to find the answer I am looking for. Upon retirement I will get my pension from the USS retirement income builder (previously the final salary scheme) So defined benefit based on years service of an annual pension and a lump sum.

I have started paying additional contributions into the investment builder, can I do a staged withdraw from this fund upon retirement therefore supplementing my annual pension from the income builder part of the pension?

If the answer to this is yes would 25% of each withdraw be tax free, and does the lump sum from the retirement income builder affect the 25% that you can take of your pension tax free?

Puddylove

Hi
I can't answer your question but just wanted to make the observation that USS do seem to be adding information to their website constantly now so fingers crossed.

kidmugsy

swindiff wrote: »

Have searched on USS website but can seem to find the answer I am looking for. ... would 25% of each withdraw be tax free, and does the lump sum from the retirement income builder affect the 25% that you can take of your pension tax free?

"You can leave some or all of your money invested in the USS Investment Builder;
• You can then withdraw up to four cash lump sums each year when you wish to;
• Your first withdrawal in each year, or a withdrawal which reduces your savings to £0 will be free,
with each further withdrawal incurring an administration charge, currently £75;
• 25% of any withdrawals you make will be tax free, with the remainder taxed as income at the
highest rate applicable to you at the time; and
• Any savings that you don’t leave invested can be used for one or both of the other two options described in this guide."

swindiff

Thanks for that. Do you know if the lump sum from the final salary part of the pension counts towards the 25% you can take tax free?

kidmugsy

swindiff wrote: »

Thanks for that. Do you know if the lump sum from the final salary part of the pension counts towards the 25% you can take tax free?

Ah, it's complicated. The final salary part doesn't contain a pot of money to split up; a final salary pension consists of a promise about what you will get - a "Defined Benefit". So what happens is that the equivalent of a pot is calculated (last time I looked they used the standard lump sum plus twenty times the standard annual pension). You may take from 0% to 25% of that equivalent as TFLS: it's your choice. The more you take as TFLS, the less you'll get as annual pension.

To learn more you'll need to click through to the material I quoted from. Or perhaps just google using a bit of the quotation as your search term.

swindiff

So lets say the defined benefit pot is £20k a year pension and 60k Lump sum. these are pretty fixed amounts and are dependant on years service and "final" salary

But there is also a defined contribution pot of £80k. Lets say I wanted to supplement my £20k a year pension by withdrawing £8k a year from this pot. Would £2k of that withdraw be tax free or does the £60k lump sum from the DB pension have an impact on it?

If I understand you correctly the total pension value would be 20 x the annual pension of £20k + £60k + £80k = £540k

25% of this is £135k, if I take the £60k from the DB part of the pension that leaves £75k, but I have £80k in my DC pot and I want to draw it down a bit at a time.

I was wondering if all the withdraws would be subject to 25% tax free, or would it just be withdraws upto £75k which would be tax free? If I withdraw £8k as year but the pot see's growth of 10%/year it's value would ultimately be a lot more than the £80k at the start.

If it grew by 10% a year which I know is optimistic the £80k pot would hardly reduce even taking out £8k a year

Just trying to get my head round how they calculate what 25% of my total pot is? Is it 25% of its total value at the date of my retirement, or is it recalculated each year depending on what its current value is?

bigadaj

The tax free element coms from each pot, 25% of a dc pension. The multiplier on the db scheme is separate and doesn't affect the withdrawals from the dc scheme.


For the lump sum on the db scheme you'd have to transfer that out. You then wouldn't get the 3x pension lump sum but would get 25% of the total pot which I think is what you've said.


If you make withdrawals on this second scenario then you crystallise an amount at each withdrawal, so taking £8k out would mean that £2k is tax free and the remaining £6k is liable to tax at your marginal rate. That £6k is then crystallised so you can't take another bit of the tfls cherry, it's a single event.


Simplistically it's calculated on the basis of the sum you withdraw when you withdraw it.

kidmugsy

swindiff wrote: »

So lets say the defined benefit pot is £20k a year pension and 60k Lump sum. ...
But there is also a defined contribution pot of £80k. Lets say I wanted to supplement my £20k a year pension by withdrawing £8k a year from this pot. Would £2k of that withdraw be tax free

Yes. But you should look at the USS site to see whether there are more options than that. I have no plans to study the site further on your behalf.

swindiff

The DB pension comes as an annual pension and lump sum as standard so I would not need to convert any of my annual pension to get a lump sum. when it was final salary it was 1/80th pension and 3/80th's lump sum of final salary for each years service. Now i think it is 1/75th annual pension and 3/75th's lump sum, but each years pension is banked rather than it being linked to final salary.

bluenose1

swindiff wrote: »

The DB pension comes as an annual pension and lump sum as standard so I would not need to convert any of my annual pension to get a lump sum. when it was final salary it was 1/80th pension and 3/80th's lump sum of final salary for each years service. Now i think it is 1/75th annual pension and 3/75th's lump sum, but each years pension is banked rather than it being linked to final salary.

I have spent a lot of time recently looking at USS DB and additional contributions and what you say above is correct.
I am hoping to have a DC of approx £100k when I retire, I will withdraw my 25% tax free from this lump sum. With the remainder I will draw down to take my annual income up to the earning limit before tax, currently £11,500 per annum. I will only have £3k USS Pension from when I intend to retire at 57 and Ciivil Sevice/NHS pensions will start at 60 taking my total works pensions to £10k per annum. Anything left after drawdown I will have to pay 20% Tax on.