Pension scheme deficit: How much to worry?

JoeCrystal

Tomatillo said:

Yes I do plan to remain in the scheme at the moment but the contributions are becoming eye watering and I don't have a lot of faith in its management so I will keep that under review if more changes come. 

Your eye-watering contribution is still very cheap for what you will get. Still, I do see that some colleges are withdrawn from the scheme since it cost the employers so much.

ussdave

JoeCrystal said:

Tomatillo said:

Yes I do plan to remain in the scheme at the moment but the contributions are becoming eye watering and I don't have a lot of faith in its management so I will keep that under review if more changes come. 

Your eye-watering contribution is still very cheap for what you will get. Still, I do see that some colleges are withdrawn from the scheme since it cost the employers so much.

I was just about to post this.  I'm in the scheme (sadly with less built up service than the OP) and even though the increases are a bit painful the benefits are still very much worth it.  I'll certainly not be happy if things go significantly higher than 10% but without quoting ridiculous figures I can't imagine anything making me opt out.

Really interesting discussion and answers though, so thank you to Tomatillo for asking and for those that responded.

I have salary sacrificed up to 14% on a regular basis to the DC part of the scheme, though I defnitely did read one report where someone had been limited to 1% only.  I guess it depends on the employer.  I would echo what others have suggested - continue salary sacrificing into the DC pot at as high a rate as you can.  When you're considering leaving employment maybe look to move it elsewhere but keep in mind that if the scheme *doesn't* go to the PPF, you can draw the DC amount entirely tax free as the tax free lump sum element is calculated including the DB benefits. 

For example, assuming you've built up 10,000 per year, the total tax free lump sum maximum would be 25% of (20 x 10,000 + the total in your DC pot).  Let's assume you managed to save 100,000 into the DC pot for the purposes of this.  In this case, your max tax free lump sum would be:
25% of (100,000 + (20 x 10,000)) = 75,000
The remaining figure you could then draw down normally (taxable), convert to further DB benefits (currently allowed, may change) or buy an annuity (probably poor value).

Even if you don't manage to save such a figure, most of what you put in to the DC pot will be tax free to withdraw at retirement so you're saving a huge amount of tax and national insurance.  Of course, things may change... but that's something you'll need to deal with when it happens.  Either way, having as much saved as possible into the USS DC pot will be the most tax efficient way to save and if the time comes when the USS scheme goes belly up, this pot of money will be safe and if need be can be transferred into another scheme if you so wish.

2nd_time_buyer

ussdave said:

...you can draw the DC amount entirely tax free as the tax free lump sum element is calculated including the DB benefits. 

Thanks. That is a really useful bit of knowledge. 
EDIT: It inspired me to enter the vortex of the USS website to find the details. Here they are:
https://www.uss.co.uk/-/media/project/ussmainsite/files/for-members/factsheets/using-your-investment-builder-pot.pdf?rev=f585394a4214455c966e5abb17cf3fbf&hash=135ADDA5E135F2EF127F408031AE16FA

Tomatillo

Thanks very much for all that very helpful info ussdave.