Taking USS Flexible Retirement --- What I can't work out is ..

PJM_62

I've been doing some reading up on my USS scheme, and it seems to me Flexible Retirement is a great alternative to Early Retirement (which I had been thinking about doing).

*** The rules are summarised below.

Early retirement reductions are same for FR and ER.
But happily the Max TFLS is calculated by also taking into account what is in the Investment Builder (DC) pot.
So could be much more than 3 x DB. 

Here is a worked example for the DB part.
https://hr.admin.ox.ac.uk/files/exampleofflexibleretirementpdf


What I can't work out is ,
if I applied to do just one step, reducing hours by 20% (4 day week),  I can choose to take between
20% and 80% of my DB pension (+TFLS) paid along side my (reduced by 20%) salary , for as long as I continue to work. (probably 2 years)
why would I take anything other than the 80% ?

***   Flexible retirement allows you, with your employer’s agreement, to take

up to 80% of your pension in the Retirement Income Builder as long as

you agree to reduce your hours and salary by at least 20%. You must be

55 or older and have at least two years’ qualifying service.

You can take up to two flexible retirements and continue working, but if

you want to take any more of your Retirement Income Builder benefits

you would then have to fully retire. If any of your flexible retirements are

before your normal pension age, they may be reduced for early payment.

A member on flexible retirement has the same options as at full

retirement in respect of their Retirement Income Builder and their

savings in the Investment Builder.

MX5huggy

You need to consider the tax you will pay. Are you going to pushing yourself into 40%? 

PJM_62

MX5huggy said:

You need to consider the tax you will pay. Are you going to pushing yourself into 40%? 

If I did just the 1 flex and took 80% of pension , my salary and pension combined would be about 37k. (so staying on 20% tax).

I dont see an advantage to taking less than the 80% allowed.
But something makes me think there must be one.

Simes122

PJM_62 said:

What I can't work out is ,
if I applied to do just one step, reducing hours by 20% (4 day week),  I can choose to take between
20% and 80% of my DB pension (+TFLS) paid along side my (reduced by 20%) salary , for as long as I continue to work. (probably 2 years)
why would I take anything other than the 80% ?

I think it's because if you took less, then less of your pension will be reduced by the ERF.   The technical disadvantage to taking 80% of it now, is that 80% of it is subject to an ERF, vs if you say took 20% of it now.

However, the ERF's for USS are very generous in my view.   And you get the benefit of having it now (if early retired), for a number of years when you wouldn't otherwise get it.  While the received wisdom is to preserve DB benefits by deferring as long as is possible, in USS's case, you have to live to a grand old age for you to be worse off.   

PJM_62

When I end Flexible Retirement and stop working, ill be 58, and beginning Early Retirement.
My understanding is that at that point I get 100% of my pension, less the ERF for age 58,  +TFLS.
So it is unaffected by what I was taking during FR (ages 56 and 57).

So .. doesnt it make sense to take the max I'm allowed during FR - which is 80% (less the ERF),
before beginning ER which pays 100% (less the ERF). 

I think currently the ERF is 3.5% per year.  So a reduction of about 30%.

@slithy_tove @ussdave @MPLMPL @bluenose1 @swindiff  -- Do any of you guys have experience/knowledge of the USS FR option ?

ussdave

PJM_62 said:

When I end Flexible Retirement and stop working, ill be 58, and beginning Early Retirement.
My understanding is that at that point I get 100% of my pension, less the ERF for age 58,  +TFLS.
So it is unaffected by what I was taking during FR (ages 56 and 57).

So .. doesnt it make sense to take the max I'm allowed during FR - which is 80% (less the ERF),
before beginning ER which pays 100% (less the ERF). 

I think currently the ERF is 3.5% per year.  So a reduction of about 30%.

@slithy_tove @ussdave @MPLMPL @bluenose1 @swindiff  -- Do any of you guys have experience/knowledge of the USS FR option ?

Not off the top of my head but I'll do some reading tomorrow

bluenose1

Don’t know anyone who has taken flexible retirement.  

The advantage of taking the full 80% pension immediately is the maximum increase in income now, however you are losing out on the annual increases from normal retirement age for the 30% actuarial reduction.

Also I wonder with flexible retirement can you apply for Commutation of your DB to convert to the maximum tax free lump sum as the commutation factors are worth considering.

I suppose you have to be careful that you have enough income throughout your retirement, so 
not  sure if this is even an option but just thinking depending on your income requirements you could consider taking 50% /60% of your pension but commuting the maximum. Just to increase your pension for when you do take full retirement. 

It all depends on your income requirements. The general rule on this forum  is don’t take your pension early if you don’t need to, but in order to retire early 55/56 I am going to have to take mine at about 59 when my DC pot is running low. 
It’s all about getting the balance and I do worry about inflation.

If it were me I would do a spreadsheet of the different scenarios building in inflation until at least State Pension starts.

Flexible retirement sounds tempting, but not for me as I am hoping for VR in next year.
Good luck, sounds very exciting.

slithy_tove

What I can't work out is ,
if I applied to do just one step, reducing hours by 20% (4 day week),  I can choose to take between
20% and 80% of my DB pension (+TFLS) paid along side my (reduced by 20%) salary , for as long as I continue to work. (probably 2 years)
why would I take anything other than the 80% ?

***   Flexible retirement allows you, with your employer’s agreement, to take

up to 80% of your pension in the Retirement Income Builder as long as

you agree to reduce your hours and salary by at least 20%. 

I had assumed that the pension plus the work proportions must add to 100%, otherwise this fails the “no such thing as a free lunch” test. Time to check the full rules of the scheme.

PJM_62

bluenose1 said:

Also I wonder with flexible retirement can you apply for Commutation of your DB to convert to the maximum tax free lump sum as the commutation factors are worth considering.

....

 The general rule on this forum  is don’t take your pension early if you don’t need to, but in order to retire early 55/56 I am going to have to take mine at about 59 when my DC pot is running low. 

It’s all about getting the balance and I do worry about inflation.

The commutation factors dont look very appealing since they changed them.  So I think I'd take the cash.
What you can do is go for max TFLS which includes your IB (DC) pot in the calculation.

And apparently you can do that twice if you have 2 flexes.  eg
Flex 1  -  drop to 4 day week -  take 50% of DB + max TFLS (inc £ from IB)
Flex 2  -  drop to 3 day week -  take a further 30% of DB + max TFLS (inc £ from IB)
Flex 3  -  stop working -  take remaining 20% of DB + max TFLS (inc £ from IB)

I'm going to phone them today to check this.

PJM_62

slithy_tove said:

I had assumed that the pension plus the work proportions must add to 100%, otherwise this fails the “no such thing as a free lunch” test. Time to check the full rules of the scheme.

Not from what Ive seen, which is why I'm smelling that nice lunch.

1 flex, to a 3 or 4 day week, lasting 2 years, during which you can get 80% of pension (ERF reduced) + max tfls  +  the salary for the days worked.
Then retire and get 100% of pension (- ERF)  + max tfls (which uses DC pot for calculation).

PJM_62

Just had a really useful chat with someone at USS , who explained it all.

I thought there was a sort of reset when you ended FR and started R / ER.  Ie, the ERF for that ER/R age then gets applied to 100% of pension.
Not the case.

1x Flex example ...
At age 56 you could drop to a 4 or 3 (or 2 day) week, and take 80% of pension with ERF (for 56) applied.
2 years later you retire at 58. 
You continue to get the 80% figure (cpi increased only)  +  the remaining 20% of pension with ERF for age 58 applied.  

2x Flex example.
at 56, 4 day week, 50% pension (ERF 56)
at 57, 3 day week,  take further 30% of pension (ERF 57)
at 58 , retire, take remaining 20% pension (ERF 58)

The Flex chunks stay with you forever. So there is the hit on jumping for the 80% of P.
  It was obvious when the guy explained it.

Whats cool though is that at each flex (be that 1 or 2) and at final retirement, you get a lump sum.
And the max TFLS each time can be worked out using your Px3 and IB pot combined. The max is subject to gov rules.
So another benefit of FR is getting ££ out of your IB free of tax, while still working part time.
Any remaining IB can be left where it is and UFPLS used to draw on it, with 25% of each withdrawl tax free.