USS - General discussion

FIREmenow

NickBFS said:

On a tangent to bluebirdy's question, I also have some questions related to maximising pension contributions in the year of retirement.

I am retiring in September and want to contribute 100% of my salary this tax year to my pension. I do not expect to have any income (other than my pension) after retirement. Since April, I have been maximising my salary sacrifice contributions. However, since you are not allowed to salsac beyond the minimum wage, I can still contribute the salary that was paid to me to a pension. I won't be able to do it to USS (I did not want to get into the complication of asking my employer to contribute the maximum possible via salsac and then contribute the rest without salsac) so I will make a one-off contribution to a SIPP after retiring. 

I think that I know the answers to the questions below but wanted to double-check that I have not missed something so I would be grateful for confirmation that the following are correct: 

1) timing of contributions: as long as I do it in the current tax year (i.e. before 6 April 2025), that is fine as long as it is within the tax year even if I do not earn any qualifying income after September.

2) amount of contributions: AIUI, I can contribute 100% of my salary to my pension. If I take the amount on my payslip after salsac but before tax and NI contributions, this represents the additional amount that I can contribute to my pension. If I take away 20% of this to cover for income tax at basic rate (I will be a basic rate tax payer this year), this represents the amount that I can transfer to a SIPP.  Let us say for the sake of argument that my cumulative gross salary from April to September after salsac is GBP 10K. The amount I can put in a SIPP will be 8K (with 2K which will be added by the SIPP provider on behalf of HMRC to bring the total in the SIPP to 10K). In particular, I do not need to deduct NI contributions from the amount I pay into the SIPP.

3) which scheme to contribute to: there is no easy practical way to shift those amounts to USS while benefitting from the fees subsidy so the easiest way forward is to contribute this to a separate SIPP.

4) pension recycling: in addition to compulsory USS contributions, I have been contributing an extra 20% of my salary in AVCs for the last five years and have been substantially increasing this in the last 18 months or so. As long as the cumulative total of my extra pension contributions above the 20% AVCs baseline in the two previous tax years and the current tax year do not exceed 30% of the tax-free lump sum I will be receiving when I retire next September, I do not have to even begin to worry about pension recycling rules. 

I am not an expert, but I think most of your understanding matches my understanding for 1 and 2, apart from one thing:

Have you factored in the annual allowance? The annual allowance for tax relief for all types of pension contributions is £60k this year. 

Might not be an issue when only working for six months of the year, and I've no idea how much allowance the DB calculation takes up, but you didn't mention annual allowance, just the 100% of earnings rule, and posters often confuse those two rules so I thought I'd mention it.

https://www.gov.uk/tax-on-your-private-pension/annual-allowance

Annual allowance
Your annual allowance is the most you can save in your pension pots in a tax year (6 April to 5 April) before you have to pay tax.
You’ll only pay tax if you go above the annual allowance. This is £60,000 this tax year.
What counts towards the annual allowance
Your annual allowance applies to all of your private pensions, if you have more than one. This includes:

• the total amount paid in to a defined contribution scheme in a tax year by you or anyone else (for example, your employer)

• any increase in a defined benefit scheme in a tax year

If you use all of your annual allowance for the current tax year
You might be able to carry over any annual allowance you did not use from the previous 3 tax years.

For point 3: after salary sacrifice, the main benefit of getting more money into USS versus another provider is being able to take out more than 25% of it tax free in the PCLS when combined with the DB part. If you're already getting the max possible tax free cash and still have some of the DC left  (without commuting any of your pension into lump sum) then I think the only benefit is the fee savings which are less worth it.

Transferring a SIPP into USS is also likely to be in cash, so you are out of the market for however long it takes (can work for or against you depending on what the market does!)

~£20k in a SIPP with a percentage-fee DIY broker could cost less than £60/year. You could drain the SIPP first if/when drawing down to eliminate the fees. Some don't charge platform fees on holding cash in a SIPP, and pay small amounts of interest on it (HL, Vanguard).

Only other thing that came to mind is will you have reached the NI threshold in those six months at minimum wage to have a qualifying year for state pension (if you need it). My employer takes people out of sal sac to maintain both NMW and NI LEL, but I don't think that's standard. Just a case of paying voluntarily to get the cheapest incomplete years, if needed. 

NickBFS

Thanks. All good points but I think I am OK on all of them:
- I will be well below the annual allowance;
- I am already maxing out on the combined DB+DC PCLS (i.e. (6+2/3)*annual DB pension) so no additional benefit to be reaped here;
- I do need another year for the full state pension (just one, as it happens!) but my post-salsac taxable earnings over the 6 months to September should be around 11K in total, which should be more than enough to get a qualifying year (the NI LEL is £123/week, which works out at £6396 for the year, so well below my £11K taxable earnings for the year).

swindiff

I can't remember if this has been clarified before.  With regard to the new ERF's which were planned for April but now delayed until October, does the modeller account for the new factors, or still use the old ones?

Simes122

swindiff said:

I can't remember if this has been clarified before.  With regard to the new ERF's which were planned for April but now delayed until October, does the modeller account for the new factors, or still use the old ones?

I believe it's using the new factors, even though they aren't applicable, which isn't helpful.

swindiff

I hope it is, or my projection will be worse come October.

bluebirdy

Just an update to say that my employer has agreed to pay the taxable part of my lump sum into pension before my end date, which is great news.

Now the only decision is what proportion of the IB to leave in there, and where else to stash bits of the remaining lump sum. 

bluebirdy

Really struggling with the USS Notification of Retirement form and how to get it to match the “optimising lump sum/retaining DC savings” plan that many of us here have been discussing.

Any recent USS retirees willing to share how they completed it?

Is it just the option which says;

”You choose:

Tell us how much you want as pension or TFLS”

…and then somewhere on the form I set some of the IB/DC pot to stay partially invested?

Any help/advice welcome!

Tarama

Hello 

I have a question that I don't think has already been covered in this thread.

This is for a friend who is currently working PT in a HEI for the last 2 years (retired from another HEI about 4 years ago - currently  in receipt of a USS pension - about 17K pa). 

In the current PT employment my friend did not join USS but is now considering doing so.  So rejoining is possible?  Then my friend wants to stay in the scheme until retirement at 67 - 4 years away and she thinks she can leave all she accrues (DB - RIB and DC - IB) and combine this to take as drawdown. 

Many of you here know the USS rules around this and I wonder if  you could comment on the viability of this.  Is it possible - can she combine RIB and IB to take as drawdown?  Are there any pitfalls she needs to be aware of?  Anyother comments?

Many thanks 
Tarama       

NickBFS

bluebirdy said:

Really struggling with the USS Notification of Retirement form and how to get it to match the “optimising lump sum/retaining DC savings” plan that many of us here have been discussing.

Any recent USS retirees willing to share how they completed it?

Is it just the option which says;

”You choose:

Tell us how much you want as pension or TFLS”

…and then somewhere on the form I set some of the IB/DC pot to stay partially invested?

Any help/advice welcome!

When I phoned them to ask how to fill the form (specifically, I asked them whether I could enter an actual sum in part 3 rather than a percentage), they told me to explain in part 8 exactly what I wanted (and to mention: see part 8 in part 3 instead of specifying any number there). So what I did is as follows:

In part 3, for investment builder (DC) contributions, I ticked the box but, where it asks for the percentage, I wrote:  "see part 8" instead of specifying a percentage.

In  part 4, I ticked "standard option - pension an lump sum but added next to it: "(plus investment builder: see part 8)"

In part 8, I then explained exactly what I wanted. When I asked for my provisional retirement quote, I had asked them to provide a quote which optimised the lump sum as discussed here (i.e. asking to take RB and IB benefits together, with a maximum combined tax free lump sum with no commutation of DC savings and the remainder being left in the IB). The quote they sent me did include that under the "standard option". I therefore explained in part 8 that what I wanted was the "standard option" in the provisional retirement quote they had sent me. I also re-explained what it was, namely:
- standard annual pension of £ xx,xxx.xx;
- maximum combined tax-free lump sum with no commutation of DC savings into additional annual pension (in other words, a tax-free lump sum of (6+2/3)*standard annual pension= £ xxx,xxx.xx);
- remainder of DC savings (£ xx,xxx.xx) remaining invested in the Investment builder.

The specific sums (the £ xx,xxx.xx and £ xx,xxx.xx) were those that were mentioned in my provisional retirement quote. I will only retire late September so I cannot guarantee that this has worked perfectly but I am reasonably confident that it should be OK. 

You would need to adapt that to your own situation, especially if the provisional retirement quote they sent you did not include the lump sum optimisation that you want, but the basic idea is that you use part 8 to clarify exactly what you want. 

bluebirdy

Thank you @NickBFS you’re a lifesaver!