When do you start Investing?

swindiff

Apparently not reading this. It does appear that if when I come to retire they do not allow the drawdown on the DC fund, it could be transferred to a SIPP at no charge and drawn from there.

https://drive.google.com/file/d/1pJBZxWUMaUMmlnvvE0Tas3pNva_Ygyoe/view?usp=sharing

I don't know what effect that would have on my tax free lump sum though, as without transferring the value of the DB part of the pension is taken into account when calculating the TFLS

These are the figures the USS modeller gives me assuming I continue to make the same contributions

Retirement age of 60
DB Pension £17,170
DB Lump Sum £51,510
DC Possible future value (today's money terms) £156,740
so £17,170 pension + £208,250

There is then also a benefit conversion modeller to look at what lump sum you wish to take. I think they work it out by using (20 x the annual pension + DB lump sum + DC Value) x 0.25 to give a value for the 25% you can take tax free, its not exact but it comes out pretty close using 20x the annual pension.

They give 3 illustrations, "standard" lump sum and pension, minimum pension and maximum lump sum and maximum pension and minimum lump sum.

So I could take a maximum TFLS of £135,528 with a pension of £20329, effectively giving up £72,722 for an extra £3159/year. An inverse commutation rate of 23

Minimum TFLS of £0 with a pension of £24,079, giving up £208,250 for £6,909/year. inverse commutation of 30

Standard TFLS of £51,510 with a pension of £22,564, giving up £156,740 for £5,394/year. Inverse commutation of 29.

I think taking all £208,250 as cash would not be wise due to the tax I would pay on it. The inverse commutation rate on the maximum TFLS scenario seems to make that the best value, unless I am missing something?

If I were to transfer the DC pension of £156,740 to a SIPP, I am assuming the TFLS would only be 25% of that so £39,185. I would still get the £51,510 lump sum from my DB pension tax free, so this would be £90,695. This is £44,833 less than the maximum TFLS previously. So possibly an extra £44,833 that I would be paying tax on if I transfer it to a SIPP.

Is this correct or am I missing something?

kidmugsy

swindiff wrote: »

So possibly an extra £44,833 that I would be paying tax on if I transfer it to a SIPP.

Is this correct or am I missing something?

Two considerations:

Once you start taking a higher-than-standard monthly pension there is no corresponding increase in the widow's pension (do check). That means that the extra pension is worth less than at first appears.

Secondly, if you end up with extra crystallised funds in the SIPP you could just leave them there for the future use of your widow, children, grandchildren, and so forth, while the money would still be available to you, taxed, for emergencies.

P.S. The funding position of the USS DB sections look so precarious that I might personally be reluctant to leave any money behind that I could get out as TFLS. But this all a dozen years away so that observation isn't of any help.

swindiff

Thanks Kidmugsy those are 2 points that I had not thought of.