USS Investment Builder

bluenose1

Thanks USSDave, good to know. Seeing  as it’s all or nothing will be keeping it where it is until I finish work.
I was pleasantly surprised to be getting any interest on my cash, it’s a higher rate than easy access savings accounts so better off there and I don’t really need the money until I finish.

ussdave

bluenose1 said:

Thanks USSDave, good to know. Seeing  as it’s all or nothing will be keeping it where it is until I finish work.
I was pleasantly surprised to be getting any interest on my cash, it’s a higher rate than easy access savings accounts so better off there and I don’t really need the money until I finish.

An option you could do is to transfer it all out, then transfer a partial amount back in.  Transfers in do not get the same subsidies on fees so you'd be best doing this shortly before you finish working.  This was my original plan and one I may still go for if it turns out the best thing to do in the circumstances (probably something I would do if I move to a job that doesn't offer USS).

ElmoR

ussdave said:

My solution to the above problem is to transfer out the balance of the IB pot at some point.  My plan is to time it so that I can still fill it back up to the point where I maximise tax free cash at the point of drawing the RB and IB pots...and to use the amount I've transferred into a SIPP to live off for a few years, allowing me to reduce early retirement factors.

@ussdave This sounds like a strategy that I might use. Would you perhaps please explain it more fully? You can use pretend numbers. I understand the part about transferring out of IB to a SiPP, what would be the key timing aspect and why? Is it to keep it "live" and continue future payments into it? Why is that beneficial? Or is to prevent triggering something that changes the status of the pension overall? I understand the need to avoid the early retirement factors if possible to max the DB side. Is it more finessed than that?

ElmoR

ussdave

ElmoR said:

ussdave said:

My solution to the above problem is to transfer out the balance of the IB pot at some point.  My plan is to time it so that I can still fill it back up to the point where I maximise tax free cash at the point of drawing the RB and IB pots...and to use the amount I've transferred into a SIPP to live off for a few years, allowing me to reduce early retirement factors.

@ussdave This sounds like a strategy that I might use. Would you perhaps please explain it more fully? You can use pretend numbers. I understand the part about transferring out of IB to a SiPP, what would be the key timing aspect and why? Is it to keep it "live" and continue future payments into it? Why is that beneficial? Or is to prevent triggering something that changes the status of the pension overall? I understand the need to avoid the early retirement factors if possible to max the DB side. Is it more finessed than that?

ElmoR

The main reason to time it (or see my previous post for an alternative approach to achieve the same) is to enable me to still maximise my tax free cash when I draw on the USS defined benefits section and to reduce early retirement factors.

So, let's say I have £100k in my USS IB at the point of retiring, and I'll get £10k/year from the RB/DB part.  Pretty unrealistic figures but as you say, just for demonstration purposes.

If I just draw this all together at the same time I'll end up with:
TFLS: £77k ((10k * 20 + 100k + 10k * 3 )* 0.25)
DB yearly: £10k
Left over: £23k (which I'd need to draw down as fully taxable income or transfer)

If I drew it all before the NRA I'd end up with some reduced figure for the DB/RB portion, which in turn would lower my maximum TFLS and mean I could potentially have more money 'left over'.

Alternatively, if I were to (e.g.) transfer out my entire IB amount 5 years before I leave my job I could have a separate SIPP that contains most of that £100k sum and I could then continue to put money into the IB via salary sacrifice to get it back up to the amount required for the maximum TFLS.

This would then mean that I could retire a bit earlier, use the SIPP to bridge for a few years (~£16.6k tax free via UFPLS, rest taxable @20%) and eventually draw my USS pension in full, having reduced my early retirement factors significantly and actually being more tax efficient than I would've been if I'd just drawn it all together.

Hope that makes sense - written in a bit of a rush.

gundo

ussdave said:

ElmoR said:

ussdave said:

My solution to the above problem is to transfer out the balance of the IB pot at some point.  My plan is to time it so that I can still fill it back up to the point where I maximise tax free cash at the point of drawing the RB and IB pots...and to use the amount I've transferred into a SIPP to live off for a few years, allowing me to reduce early retirement factors.

@ussdave This sounds like a strategy that I might use. Would you perhaps please explain it more fully? You can use pretend numbers. I understand the part about transferring out of IB to a SiPP, what would be the key timing aspect and why? Is it to keep it "live" and continue future payments into it? Why is that beneficial? Or is to prevent triggering something that changes the status of the pension overall? I understand the need to avoid the early retirement factors if possible to max the DB side. Is it more finessed than that?

ElmoR

The main reason to time it (or see my previous post for an alternative approach to achieve the same) is to enable me to still maximise my tax free cash when I draw on the USS defined benefits section and to reduce early retirement factors.

So, let's say I have £100k in my USS IB at the point of retiring, and I'll get £10k/year from the RB/DB part.  Pretty unrealistic figures but as you say, just for demonstration purposes.

If I just draw this all together at the same time I'll end up with:
TFLS: £77k ((10k * 20 + 100k + 10k * 3 )* 0.25)
DB yearly: £10k
Left over: £23k (which I'd need to draw down as fully taxable income or transfer)

If I drew it all before the NRA I'd end up with some reduced figure for the DB/RB portion, which in turn would lower my maximum TFLS and mean I could potentially have more money 'left over'.

Alternatively, if I were to (e.g.) transfer out my entire IB amount 5 years before I leave my job I could have a separate SIPP that contains most of that £100k sum and I could then continue to put money into the IB via salary sacrifice to get it back up to the amount required for the maximum TFLS.

This would then mean that I could retire a bit earlier, use the SIPP to bridge for a few years (~£16.6k tax free via UFPLS, rest taxable @20%) and eventually draw my USS pension in full, having reduced my early retirement factors significantly and actually being more tax efficient than I would've been if I'd just drawn it all together.

Hope that makes sense - written in a bit of a rush.

I'm a USS pension member but only for 5.5years and I'm 56. I'd like to retire at 60 as I'd have paid sufficient NI for full state pension and I have two DB pensions (Civil Service and Local Govt) that will pay me £13K at 60 regardless (no or little benefit deferring). I have the proceeds of the sale of my late parents' home coming next month (£250K), so my initial plan was to smash as much as possible into USS AVCs (i.e. reduce my salary from 38K to 17K or so) as a way growing and the windfall and being tax efficient, I've upped my AVCs to £1200 a month starting this month. I'l also open a SIPP with Vanguard and bung whatever I have left of my 38K a year allowance into there and obviously I'll be maxing out my S&S ISA with Vanguard every year and £50K in premium bonds as easy access liquid assets plus £20K in an even easier access emergency funds savings account. I'm very interested in what you say about timing. But I'm a thick and I'm not sure I understand completely. So sorry. Could you spare the time to illustrate how it might work for me?

ussdave

gundo said:
I'm a USS pension member but only for 5.5years and I'm 56. I'd like to retire at 60 as I'd have paid sufficient NI for full state pension and I have two DB pensions (Civil Service and Local Govt) that will pay me £13K at 60 regardless (no or little benefit deferring). I have the proceeds of the sale of my late parents' home coming next month (£250K), so my initial plan was to smash as much as possible into USS AVCs (i.e. reduce my salary from 38K to 17K or so) as a way growing and the windfall and being tax efficient, I've upped my AVCs to £1200 a month starting this month. I'l also open a SIPP with Vanguard and bung whatever I have left of my 38K a year allowance into there and obviously I'll be maxing out my S&S ISA with Vanguard every year and £50K in premium bonds as easy access liquid assets plus £20K in an even easier access emergency funds savings account. I'm very interested in what you say about timing. But I'm a thick and I'm not sure I understand completely. So sorry. Could you spare the time to illustrate how it might work for me?

I think you're in a slightly different position to myself as you already have means to fill up a SIPP or separate pot that would allow you to retire earlier (the £250k inheritence).  For myself I will only be building my pot via my salary so it's a slightly different situation.  Also, you are much closer to retirement, which again makes things a little different.  To be honest, I think your plan is already pretty close to optimal.

Out of interest, how much do you expect to have in your AVC / IB at the point of retirement?  And do you plan to draw on your USS pension at the same time as your other pensions (i.e. 60) or leave it until NRA?

One other thing you could do that you've not mentioned is to make use of the small pots rule.  You can take 3 * £10k small pots without triggering MPAA.  There's a post on here somewhere about it which explains it.

gundo

ussdave said:

I think you're in a slightly different position to myself as you already have means to fill up a SIPP or separate pot that would allow you to retire earlier (the £250k inheritence).  For myself I will only be building my pot via my salary so it's a slightly different situation.  Also, you are much closer to retirement, which again makes things a little different.  To be honest, I think your plan is already pretty close to optimal.

Out of interest, how much do you expect to have in your AVC / IB at the point of retirement?  And do you plan to draw on your USS pension at the same time as your other pensions (i.e. 60) or leave it until NRA?

One other thing you could do that you've not mentioned is to make use of the small pots rule.  You can take 3 * £10k small pots without triggering MPAA.  There's a post on here somewhere about it which explains it.

Thanks so much for your reply. My very vague plan is to retire at 60 (I'm fed up with my job and think I'd like to stop working then) but leave the USS pension until my actual retirement date which is 67 (NRA I guess). I'd soldier on for those 7 years with the £13K DB pensions and dip into the windfall plus a £24K lump sum from my LGPS pension. Perhaps these are unrealistic aspirations for me...? £13K isn't much I know, though I'm mortgage free and live on my own with no dependents. Obviously I'd have my emergency fund for out of ordinary stuff like roof replacement/boiler gone futt etc.
My IB by 60 should be roughly £60K

apt

The part of your USS pension accrued up to October 2020 wouldn't be reduced if you take your pension at 65.

bluenose1

gundo said:

Thanks so much for your reply. My very vague plan is to retire at 60 (I'm fed up with my job and think I'd like to stop working then) but leave the USS pension until my actual retirement date which is 67 (NRA I guess). I'd soldier on for those 7 years with the £13K DB pensions and dip into the windfall plus a £24K lump sum from my LGPS pension. Perhaps these are unrealistic aspirations for me...? £13K isn't much I know, though I'm mortgage free and live on my own with no dependents. Obviously I'd have my emergency fund for out of ordinary stuff like roof replacement/boiler gone futt etc.

My IB by 60 should be roughly £60K

Didn’t think you could still put in AVCs. Do you get salary Sacrifice for them? If not do you get them for your DB pot? Just thinking of best way for you to maximise return.

My strategy is similar, I have reduced my salary to national minimum wage to put my salary into my DC pot. I have also been using savings to put the rest of my net income into a SIPP.
When State Pension starts I will have a good income with my DB pensions. Therefore I am looking to pretty much live off my DC pot from 55, pulling out as much as I can without paying tax. This would be about £17,000 per year if no other income, though will have to pay tax on some of it I know. 

When that is depleted I make take my civil service and NHS pensions early, maybe at 58. My thinking is it will be until my mid/ late 70s before I am worse off and as will be in receipt of state pension by then will be reasonably well off, by my standards.
I also intend to take my USS pension by 60 with the maximum tax free sum if the multiplier is as good value as it currently is.
I would suggest you break down your gap years until your SP starts and work out what income you require compared to what income you will have including inflation. 

Personally I don’t see the point of scrimping  to be extremely well off after 67. Sounds to me like you could potentially re-arrange your finances to be a lot better off from when you leave work if you wanted. Feel free to ignore, just my tuppence worth.

gundo

bluenose1

Didn’t think you could still put in AVCs. Do you get salary Sacrifice for them? If not do you get them for your DB pot? Just thinking of best way for you to maximise return.

Yes you can still put in AVCs. They'll go into the DC Investment Builder scheme. I'm leaving the DB part of the USS scheme alone until I'm 67 to maximise its value (it won't be worth that much). AVCs go in via salary sacrifice so that saves me NI, income tax and my employer pays all the management fees for the Investment Builder scheme. So IMHO it's better than a SIPP because I assume they're better at managing the money than me and the fact that it's salary sacrifice. I will still have a SIPP so I can shelter as much of my windfall from tax as possible. This month will be my first month on minimum salary. I looked at my payslip today and it's working out as I expected. In my own spreadsheet I'd even managed to calculate the new income tax and NI deductions correctly (I'm easily pleased).