USS Retirement Question

ussdave

MPLMPL said:

ussdave said:

Also - question for anyone in the know.  Once you've drawn to the maximum lump sum, presumably any benefits left in USS IB for further drawdown are crystalised?  If so, I imagine that whether or not you transfer to another SIPP or leave the money in USS IB to drawdown later my earlier point about 25% tax free on remainder was wrong.

From the benefit modeller on the USS site "What if my Investment Builder is more than the maximum tax-free cash?

You can either convert the excess amount of funds above the HMRC limit into additional pension, or alternatively you can leave the excess funds invested. If you leave the funds invested you can withdraw them any time you like in the future and, provided you have not exceeded your available Lifetime Allowance, 25% of each withdrawal will be tax-free and the remainder will be subject to income tax (based on current HMRC rules)."

Nice find.  I guess I should've gone and re-checked myself   Thanks.

MPLMPL

ussdave said:

MPLMPL said:

ussdave said:

Also - question for anyone in the know.  Once you've drawn to the maximum lump sum, presumably any benefits left in USS IB for further drawdown are crystalised?  If so, I imagine that whether or not you transfer to another SIPP or leave the money in USS IB to drawdown later my earlier point about 25% tax free on remainder was wrong.

From the benefit modeller on the USS site "What if my Investment Builder is more than the maximum tax-free cash?

You can either convert the excess amount of funds above the HMRC limit into additional pension, or alternatively you can leave the excess funds invested. If you leave the funds invested you can withdraw them any time you like in the future and, provided you have not exceeded your available Lifetime Allowance, 25% of each withdrawal will be tax-free and the remainder will be subject to income tax (based on current HMRC rules)."

Nice find.  I guess I should've gone and re-checked myself   Thanks.

My experience is that they don't make things easy to find on the USS site, or more to the point, they don't tend to cover fine detail such as this. I don't think that I've come across it in the IB guides or retirement option guides, you typically get a statement that "you may be able to take all of your IB as a TFLS", but never explain how/why or the calculation required.
I only stumbled upon it yesterday after reading this thread; I was also under the impression that the remainder was crystallised and could only be commuted or transferred to a SIPP (as USS only offer UFPLS). I was pleased to have been wrong.
It was in Benefit Illustrator on the "Retirement Choices" tab.  
I'm amazed at how generous it is, you can get a hefty wedge out of your IB tax free and leave the remainder uncrystallised. This fact, coupled with the much improved ERFs since 2020, have me swaying back to taking the DB in this manner, at 55/56 rather than using the IB to bridge the gap and take a larger DB at 63.5 (a significant percentage of my USS DB is pre-2011 final salary service).

bluenose1

MPLMPL- just checking you know that anything you take out of your IB is 25% tax free/ 75% taxed.
Not sure if I am misunderstanding what you are saying.  

“If you take a cash payment from a defined contribution (DC) scheme like the Investment Builder, it will trigger the MPAA. This is the limit you can pay into any DC scheme each year and still get tax relief. It applies to all DC schemes of which you’re a member and any that you join in the future.

The MPAA is currently £4,000, so once you’ve taken a cash payment, any contributions above this amount paid by you and/or your employer(s) in a tax year, into any DC arrangement will be subject to tax charges.

Once triggered, the MPAA applies for life. The benefits you build up in the Retirement Income Builder are not affected by the MPAA as it is the defined benefit (DB) section of the scheme.

You should consider this carefully, when deciding whether to take a cash payment.”

MPLMPL

bluenose1 said:

MPLMPL- just checking you know that anything you take out of your IB is 25% tax free/ 75% taxed.
Not sure if I am misunderstanding what you are saying.  

Yes, you're misunderstanding, I probably wasn't clear!

I was referring to the ability to get significantly more than 25% of the IB tax free if you take it at the same time as the DB pension. In USS, if the IB is taken at the same time as the DB, the TFLS is calculated as 25% of the total of: 23 x DB (i.e. 20 x DB plus standard DB lump sum of 3 x DB) + IB.
My incorrect assumption was that if you go down this route, you have to use/crystallise the entirety of your IB at this point. You don't, you can use enough IB to get the maximum TFLS and leave the remainder uncrystallised (i.e. still available for 25% tax free and 75% taxed).

In the case of the OP, their DB pension is farily substantial; therfore, they are able to take almost the entirety of their £130,500 IB tax free. Their DB is £28,315, so they could request USS use £103,821 of their IB at the time they take their DB pension, taking this entirely tax free (in addition to their 3 x DB pension tax free lump) and leave £26679 uncrystallised in the IB. This removes ~80% of their IB tax-free and still leave another 25% of the remaining £26,679 available tax free if/when needed. Taking this into account, it ends up with the possibility of ~ 85% of the £130,500 IB taken tax free.
Their option 2 quote given by USS effectively does this, but crystallises the whole £130,500 of the IB (rather than £103,821) and converts the left over to an additional pension of £424 pa. 

In my own case, the rough figures are that at 55 I would have a DB pension reduced by ERFs to ~£14,000 and an IB of ~£200,000. A quick calculation would suggest that I can maximise the tax-free amount at this stage by using £51,333 of my IB, leaving the remaining £148,667 uncrystallised (of which 25% can be taken tax free). This means that (including 25% of £148,667) I could get a total of £88,500 out of my IB tax free ~44%.
Over the last couple of years, the building up of my IB by salary sacrificing ~50% of my salary was intended to give me the option to bridge the gap between 55 and taking the DB at 65 (well, 63.5 as a fair chunk of pension is pre-2011). The more favourable ERFs since 2020 and the ability to take more tax free than I had previously thought have given me some thinking to do over the next 3 years or so. 

Tarama

Hello MPLMPL and others 

some interesting points here.

So MPLMPL you say 

"I was referring to the ability to get significantly more than 25% of the IB tax free if you take it at the same time as the DB pension. In USS, if the IB is taken at the same time as the DB, the TFLS is calculated as 25% of the total of: 23 x DB (i.e. 20 x DB plus standard DB lump sum of 3 x DB) + IB.
My incorrect assumption was that if you go down this route, you have to use/crystallise the entirety of your IB at this point. You don't, you can use enough IB to get the maximum TFLS and leave the remainder uncrystallised (i.e. still available for 25% tax free and 75% taxed)."

My plan is to take the maximum TFLS and  after doing this, as you say I have about £23.000 left which my USS option 2 had commuted into annual pension (from the RIB DB section).  The commutation factor here is very poor (changed last November), so this was really my initial key question  (poorly expressed) - was there any other strategy USS offer to avoid having to do this.  I will continue to pay into the IB this year so will have approx £50,000 excess above the initial 25% TFLS by the time of my retirement.

So from what I understand from the conversations above - I can do what MPLMPL says above and then leave the reminder of the IB cash still invested.  I can then take cash from the IB   - 25% tax free and the 75% taxed - I think it was mentioned USS allow 3 withdrawals a year?   


Bluenose1 you state 

“If you take a cash payment from a defined contribution (DC) scheme like the Investment Builder, it will trigger the MPAA. This is the limit you can pay into any DC scheme each year and still get tax relief. It applies to all DC schemes of which you’re a member and any that you join in the future.

The MPAA is currently £4,000, so once you’ve taken a cash payment, any contributions above this amount paid by you and/or your employer(s) in a tax year, into any DC arrangement will be subject to tax charges.

Once triggered, the MPAA applies for life. The benefits you build up in the Retirement Income Builder are not affected by the MPAA as it is the defined benefit (DB) section of the scheme.

You should consider this carefully, when deciding whether to take a cash payment.”


So if as I plan - to do some PT work in a HEI after retirement, it is only possible to contribute to the DC portion up to a limit of £4000 pa?  But contributions to the DB portion are not affected by this rule? 

I agree USS do not make this process easy to navigate.  

Thanks to all here

Tarama

Tarama

bluenose1 said:

MPLMPL- just checking you know that anything you take out of your IB is 25% tax free/ 75% taxed.
Not sure if I am misunderstanding what you are saying.  

“If you take a cash payment from a defined contribution (DC) scheme like the Investment Builder, it will trigger the MPAA. This is the limit you can pay into any DC scheme each year and still get tax relief. It applies to all DC schemes of which you’re a member and any that you join in the future.

The MPAA is currently £4,000, so once you’ve taken a cash payment, any contributions above this amount paid by you and/or your employer(s) in a tax year, into any DC arrangement will be subject to tax charges.

Once triggered, the MPAA applies for life. The benefits you build up in the Retirement Income Builder are not affected by the MPAA as it is the defined benefit (DB) section of the scheme.

You should consider this carefully, when deciding whether to take a cash payment.”

Hello Bluenose 1

checking - is this current pensions legislation not solely a USS rule?

thanks Tarama

MPLMPL

Tarama said:

So from what I understand from the conversations above - I can do what MPLMPL says above and then leave the reminder of the IB cash still invested.  I can then take cash from the IB   - 25% tax free and the 75% taxed - I think it was mentioned USS allow 3 withdrawals a year?   

It would appear so. If you go into the Benefit Conversion Tool and plug in your numbers (DB £28,315, IB to take £103,821) you will get the screenshot below (after sliding to max cash). The default £84945 is the standard 3 x DB lump sum, the remainder the £103,821 of your IB that you choose to take. If you plug in your entire IB into this tool, you end up with the numbers in your scenario 2.

When it asks "Amount of Investment Builder to take"", if you click on the red ? you get a pop-up with "Note that for your Investment Builder savings, you can take the full value of your savings, or alternatively you can choose to take part (or none) of your savings and leave the remainder invested."
You will need to confirm with USS, but from the snippets of information that they have on the website, it would appear that you can choose how much of your Investment Builder (DC) you want to use at the point you take your income builder (DB) pension. The remainder is uncrystallised and available for UFPLS (four allowed a year, 1st withdrawl of the year free, subsequent ones £90 admin charge).

bluenose1

Tarama said:

bluenose1 said:

MPLMPL- just checking you know that anything you take out of your IB is 25% tax free/ 75% taxed.
Not sure if I am misunderstanding what you are saying.  

“If you take a cash payment from a defined contribution (DC) scheme like the Investment Builder, it will trigger the MPAA. This is the limit you can pay into any DC scheme each year and still get tax relief. It applies to all DC schemes of which you’re a member and any that you join in the future.

The MPAA is currently £4,000, so once you’ve taken a cash payment, any contributions above this amount paid by you and/or your employer(s) in a tax year, into any DC arrangement will be subject to tax charges.

Once triggered, the MPAA applies for life. The benefits you build up in the Retirement Income Builder are not affected by the MPAA as it is the defined benefit (DB) section of the scheme.

You should consider this carefully, when deciding whether to take a cash payment.”

Hello Bluenose 1

checking - is this current pensions legislation not solely a USS rule?

thanks Tarama

The MPAA is UK legislation not USS. However many other  pension schemes let you just take out only the 25% out tax free so doesn’t affect the MPAA. 

Whereas for every cash withdrawal from your IB scheme it is 25% tax free and 75% taxed. Therefore trigger the MPAA.

It is really confusing so be careful if you think you may want to contribute more than £4,000 in the future.
I would consider living off my DB lump sum rather than using my IB if I wanted to work in the future.

PJM_62

Hello fellow USS folks

Reading this topic with interest.  Learning lots.

Does anyone in here know much about the flexible retirement option.
I've read what's on the USS website, but still can't work out if its a great option / offer for someone in my situation.
I'm 55 now and thinking of , a year from now when I'm 56, dropping to a 2 or 3 day week .  And am thinking it would be even nicer to move to a 4 day week between now (soon) and then.
 
Be very interested in any experiences or thoughts.

Tarama

PJM_62 said:

Hello fellow USS folks

Reading this topic with interest.  Learning lots.

Does anyone in here know much about the flexible retirement option.
I've read what's on the USS website, but still can't work out if its a great option / offer for someone in my situation.
I'm 55 now and thinking of , a year from now when I'm 56, dropping to a 2 or 3 day week .  And am thinking it would be even nicer to move to a 4 day week between now (soon) and then.
 
Be very interested in any experiences or thoughts.

Hello PJM

As far as I know, you apply for flexible retirement via your HEI.  You need to discuss this with your HoS first to ensure they will support what you propose to do.   I think either HR or your Pensions department can provide you with the FR policy, but the HoS will let you know.   In my HEI the rules about FR are restrictive and you generally can only carry on working for 3 years once you embark on ER, unless you are required by the school/faculty for specific reasons.  I am unsure if it is the same across the HE sector.

Others will have much more knowledge about how this will work - but you probably need to post when your retirement date is because you may be subject to early retirement factors.

Best Tarama