USS - General discussion

uss_tish

I am taking early retirement ( 55) from USS and will have a DB annual pension of £23k and a separate £9k pa widows pension but my dilemma is I will need an additional £17k pa for the next 4 years to cover short term additional expenditure (supporting children through uni, maintain current standard of living) and I need advice how best to release/drawdown this additional money? 

I have received my pension quotes from USS and can take the both the DB and DC lump sums totally tax free, £68k and £64k respectively. I am not interested in converting lump sum to pension as conversion rates aren't great. I have a small mortgage (less than £50k) which will be  paid off when when I downsize in 3/4 years and the sale will also release further funds (c£100k) at my disposal. I will be 2 years short on NI contributions for full state pension but will still give me £162 per week at age 67.

For context I am a high earner and will already have exceeded the £50k this tax year when I retire in a couple of months and only have £10k in savings at the moment. I would really appreciate your advice on my options:

1 - take pension and both the DB & DC TFLS and open a S&S ISA and max out premium bonds, rest in regular savings until next tax year and keep adding £20k to S&S ISA each year? 

2- defer DB pension for a few years and draw down DC taking tax hit? This seems a poor option as I will be taxed at the higher rate between now and April 2021? Or is that not correct?

3 - take DB pension and DB lump sum and leave the DC invested and draw down in future, accepting 75% will be taxed and that I am limited on the amount I can take per year to avoid higher tax?

Sorry for the ramble and thank you in advance for your help - the options have frozen my brain! Thanks

ussdave

If you read some of the recent posts on USS you'll see there's actually a 4th option which is a combination of 1 & 3.

• Commence your USS pension and take the maximum standard (no commuting of benefits) tax free lump sum on the DB and DC potions.
• Leave the remaining DC funds in the IB and draw down as per option 3.

Assuming your figures included any early retirement factors this will give you £33k of DB pension (USS + Windows), a pot of £132k tax free and then an uncrystalised pot made up of whatever money you have left in the IB builder.  You could then draw the remaining IB funds (of which 25% of each withdrawal is tax free) to take you up to the top of the BR tax bracket and if required suppliment that money with withdrawals from the £132k lump sum funds.

I'm not best placed to advise on where to invest the £132k.  As you need some of it soon I'd be tempted to keep that amount in very low risk funds/bonds and the rest invested in something like a balanced equities portfolio to spend as and when required.

Edit: Additionally, if you can afford to lock up the money for a bit you should be sacrificing as much cash as possible into the IB in USS as you will save substantial amounts of tax.

uss_tish

ussdave thank you for the reply, all helps me to be brave enough to finally fill in and send off my retirement options form. I am erring towards taking my full TFLS from both DB& DC and look into as you say short term and longer term places to invest it.

my thinking also is to take from DC pot now, not only as I’ll avoid tax but who knows what this government is going to do to pensions in future?

2nd_time_buyer

I thought you could take the tax free lump sum from the CETV of the DB portion too.

For example, say your £23k per year DB pension at 55 is worth £30k unreduced. The CETV would then be £600k (20 x £30k)

Add this £600k to the £256k (£64k x4) in the investment builder to give a total of £856k

The tax free lump sum could then be taken out of the investment builder as 25% of £856k

i.e. a grand total of £214k tax free.

I am probably missing something.

ussdave

Nope, the CETV has no impact any any aspect of the pension unless you transfer it.

I wouldn't let worries about what the government might or might not do drive your decision, uss_tish (I forgot to say - I approve of the naming convention ).

To me it sounds like you're in a great position to retire.  You could consider trying to get voluntary severance as that may allow you to draw your pension without any early retirement factors....but again, you don't absolutely need that so if getting out of there is more important you should just go for it.

ussdave

Actually, I think I see what you mean 2nd_time_buyer.

My calculation above was wrong.  The total tax free amount is higher as you do use a calculation similar to what 2nd has posted above.  I'll try and rework it tomorrow when I'm avoiding work.

Simes122

I'm confused about the DB + DC TF lump sum calculation when taking both DB&DC together.  

My DB is around £5250 at NRA (or around £4k if I take it early at 57).   My DC Pot at age 57 retirement date should be around £180k.

I think (awaiting my statement) that the maximum I could take at 57 is going to be 25% of: 20 x £4k + 3 x 4k + £180k = 25% of £272k = £68k TF LS

If what I'm saying is right, I'm not sure what that will leave in my DC Pot?  I presume the DC pot wouldn't be expected to fund the £68k in entirety leaving it with £112k?   Because if I did it in two steps - eg DB, then DC, I'd get 3 x 4k, + 25% of 180k  = £57k TF LS, and my DC pot would still have £135k in it rather than £112k above.   If that were the case, taking DB+DC together doesn't look that great an option, but in all likelihood I have done something wrong

swindiff

This only works with the USS as it is a hybrid scheme. If your DC pension is not with the USS then you can't lump their values together to calculate your tax free lump sum.

uss_tish

Thanks for the input, uss dave your calculation is correct and the total lump sum will be £132k - 25% of the total value of the DB & DC combined according to my USS quote as my total pension pot is roughly £500k.  The £68k lump sum will be the entirety of the DC pot so nothing left to leave invested but think I’m ok with that.

VS was offered to staff in the first lockdown but I wouldn’t have been eligible; sadly my circumstances have changed and if it was on offer now suspect they may well have let me go. I need/want to step away from a stressful, full on job and focus on my family and having made the decision know it is the right thing for me.

Reassuring to know my numbers look to be stacking up.

LOL thought I’d follow your lead as us USSers seem to be a rare breed on here 😏. Hope I can be of help to others in the future.

Simes122

swindiff said:

This only works with the USS as it is a hybrid scheme. If your DC pension is not with the USS then you can't lump their values together to calculate your tax free lump sum.

I’m with USS, but can’t find anywhere in the USS site how they calculate the TF lump sum - the modeller gives a different result to the methods shown here in various threads, so I’m none the wiser yet!

swindiff

It's calculated as 20x your DB annual pension plus your DB lump sum plus your DC pot, all multiplied by 0.25.