USS - General discussion

gwt1965

Does anyone have thoughts about whether it is more tax efficient, or just makes more sense generally, to take the maximum TFLS on retirement or whether it’s better to leave money invested in the Investment Builder?  

I’m single with no dependents and will retire age 60 at the end of January 2025.

My DB will be £23,612 with a 3x TFLS of £70,836. I’ll have £127,173 in the Investment Builder. 
So, I could take a DB of £23,612 and a max TFLS of £157,413, which would leave £40,594 in the Investment Builder. 

I don’t really need all that cash. My budgeted yearly expenditure will be £34k after tax so the 3x TFLS, as well as another small DB pension (c£1k) and existing S&S ISA (c£25k), SIPP (c£36k), and cash (c£45k) would be enough to bridge until I get a full state pension at 67.

If I did take the maximum TFLS I would feed £20k into an S&S ISA in February 2025 and another £20k in April 2025. Then I was thinking I would put the rest in a general investment account and bed and ISA each year until I’ve moved everything across. 

The alternative is just to leave everything over the 3x TFLS in the Investment Builder and, if I ever needed more money, to take UFPLS as and when needed or transfer to a SIPP and access that way. 

I’m thinking that taking maximum tax-free cash and then investing is the optimum strategy. But equally that I’m wrong!

ussdave

gwt1965 said:

Does anyone have thoughts about whether it is more tax efficient, or just makes more sense generally, to take the maximum TFLS on retirement or whether it’s better to leave money invested in the Investment Builder?  

I’m single with no dependents and will retire age 60 at the end of January 2025.

My DB will be £23,612 with a 3x TFLS of £70,836. I’ll have £127,173 in the Investment Builder. 
So, I could take a DB of £23,612 and a max TFLS of £157,413, which would leave £40,594 in the Investment Builder. 

I don’t really need all that cash. My budgeted yearly expenditure will be £34k after tax so the 3x TFLS, as well as another small DB pension (c£1k) and existing S&S ISA (c£25k), SIPP (c£36k), and cash (c£45k) would be enough to bridge until I get a full state pension at 67.

If I did take the maximum TFLS I would feed £20k into an S&S ISA in February 2025 and another £20k in April 2025. Then I was thinking I would put the rest in a general investment account and bed and ISA each year until I’ve moved everything across. 

The alternative is just to leave everything over the 3x TFLS in the Investment Builder and, if I ever needed more money, to take UFPLS as and when needed or transfer to a SIPP and access that way. 

I’m thinking that taking maximum tax-free cash and then investing is the optimum strategy. But equally that I’m wrong!

Yes, you only have the one opportunity to get the maximum tax benefit so you should take the max TFLS.  As you've said, you can invest/save the "extra" you don't need.  If you don't do this when you commence your pension you will essentially have opted to pay some tax of that amount that would've made up your enhanced TFLS.

FIREmenow

gwt1965 said:

Does anyone have thoughts about whether it is more tax efficient, or just makes more sense generally, to take the maximum TFLS on retirement or whether it’s better to leave money invested in the Investment Builder?  

I’m single with no dependents and will retire age 60 at the end of January 2025.

My DB will be £23,612 with a 3x TFLS of £70,836. I’ll have £127,173 in the Investment Builder. 
So, I could take a DB of £23,612 and a max TFLS of £157,413, which would leave £40,594 in the Investment Builder. 

I don’t really need all that cash. My budgeted yearly expenditure will be £34k after tax so the 3x TFLS, as well as another small DB pension (c£1k) and existing S&S ISA (c£25k), SIPP (c£36k), and cash (c£45k) would be enough to bridge until I get a full state pension at 67.

If I did take the maximum TFLS I would feed £20k into an S&S ISA in February 2025 and another £20k in April 2025. Then I was thinking I would put the rest in a general investment account and bed and ISA each year until I’ve moved everything across. 

The alternative is just to leave everything over the 3x TFLS in the Investment Builder and, if I ever needed more money, to take UFPLS as and when needed or transfer to a SIPP and access that way. 

I’m thinking that taking maximum tax-free cash and then investing is the optimum strategy. But equally that I’m wrong!

As @ussdave says, this is a one-time offer that is one of the best features of our Frankenstein pension!

As you mention efficiency, delaying payment on things from now until you get the lump sum could be a tax efficient and/or savings interest efficient way to use some of it.

Eg. putting spending on 0% purchase credit cards, and pulling back from overpaying mortgage if the interest rate is lower than you can get in savings. Then pay them back from the lump sum. (Obviously lots of factors feed into these decisions)

Another option might be whacking a bigger chunk of your salary into pension until you leave (even better if salary sacrifice). Living off current savings to do this is especially helpful if it prevents you being a higher rate tax payer this year on your wage until Jan and your pension income till April combined (also might help keep the £1,000 savings allowance if you have £45k in cash), then top up from the lump sum. 

I personally would be hesitant about putting all of the surplus into a GIA as I haven't had to read up on how dividend, income and capital gains allowances and taxes can be utilised efficiently, and planning what investments are best held wrapped or unwrapped across your portfolio. I'd probably also decide on a percentage of cash in savings I'd want to maintain for downturns in the stock market. Advice is also to spread investments across different brokers in case of broker failure and limits to any financial protection or not being able to access your investments whilst things are sorted out. Starting a new thread about how best to invest the PCLS will bring lots of knowledgeable members who may not look at this USS thread if you want opinions. (On the pension board or the savings and investments one)

Lastly, you are potentially going to have a temporarily high balance in one bank, so check out the time-limited FSCS protection on these.

gwt1965

Thanks @ussdave and @FIREmenow. I'm surer now about going down the maximum TFLS route. 

Great idea about 0% credit card ... I'd actually just taken one out with a view to deferring a bit of spending until post-retirement, but can see it makes sense to do this more actively. 

Pension (including carry forward) is maxed out already this year, given it will be my last chance to do so, and gets me under the HR threshold. 

I'll definitely start a separate post about investing the cash pot. Thanks. 

PJM_62

I did the max TFLS option when I took 80% of pension when doing Flexible Retirement. And will get to do it again when I retire fully and take the remaining 20%.  Not because I needed the cash for something specific, but it just seemed to make sense to get as much out as i could without any tax hit.
I already had ISA maxxed out and a good chunk in VLS60, so I just put it into premium bonds. Have had a few nice wins too

uss_hamish

Just to give the contrary view: the way things are now, if you take the maximum tax free and invest it, and then you *don't* spend it in your lifetime, then when you die, it forms part of your estate and may (depending on the rest of your estate) be liable to 40% inheritance tax. Whereas, if you leave it in the IB and don't spend it, it passes outside your estate and is not liable to inheritance tax (indeed, it may not incur tax for your beneficiaries at all, depending on stuff including when you die).

You said you're single with no dependants so maybe that's not a huge concern. I'm thinking that for me it may be a reason not to take the maximum tax free lump sum. I'm thinking of the IB money as care home fees - if I'm lucky enough not to need them for that I likely won't spend it at all, and having it outside the scope of IHT makes a lot of sense. 

Also, the scheme carries on paying the management fees for money invested in the IB after retirement - a small but useful benefit compared with withdrawing it and then investing it somewhere we'll have to pay our own management fees.

Of course there are several things that might get announced in October that would change this calculation. Or not.

Anyone else thinking like that?

ussdave

uss_hamish said:

Just to give the contrary view: the way things are now, if you take the maximum tax free and invest it, and then you *don't* spend it in your lifetime, then when you die, it forms part of your estate and may (depending on the rest of your estate) be liable to 40% inheritance tax. Whereas, if you leave it in the IB and don't spend it, it passes outside your estate and is not liable to inheritance tax (indeed, it may not incur tax for your beneficiaries at all, depending on stuff including when you die).

You said you're single with no dependants so maybe that's not a huge concern. I'm thinking that for me it may be a reason not to take the maximum tax free lump sum. I'm thinking of the IB money as care home fees - if I'm lucky enough not to need them for that I likely won't spend it at all, and having it outside the scope of IHT makes a lot of sense. 

Also, the scheme carries on paying the management fees for money invested in the IB after retirement - a small but useful benefit compared with withdrawing it and then investing it somewhere we'll have to pay our own management fees.

Of course there are several things that might get announced in October that would change this calculation. Or not.

Anyone else thinking like that?

Your first point regarding avoiding IHT seems reasonable if that's something the the OP cares about.

The subsidised management fees point slightly less so.  Though it's a nice perk, if the OP is planning on withdrawing/spending/reinvesting the money then the tax benefit of taking it with the PCLS will significantly outweigh the management fee savings (assuming they put it somewhere with non-ridiculous fees).  I think this is still true if you're going to use the money much later in life for care home fees, but I appreciate you're probably suggesting it as a hedging your bets kind of thing.

gwt1965

Thanks @uss_hamish. Useful to have a counter-view. I had considered IHT but concluded it's not really something that bothers me, in part because of having no dependents but in part because I do believe wealth should be taxed at the point of being passed on. If I want to avoid it I can always leave the money to charity. I'll be lucky enough also to still have some money left in the IB, which I probably won't need and so can leave to grow over the years. With a property to sell as well I think I'll be covered for care fees.  

seraphina

I have a couple of questions about the USS that I’d be grateful for advice on.

I have a good 15 years to go until retirement, and my predicted DB pension is quite healthy. However I remember it was far less healthy before the recent revaluation. What’s to stop them revaluing the scheme to a far less favourable valuation, with a knock on effect on my DB pension,  a couple of years before my planned retirement when I would have very little time to make any extra provision?

Also - can you take the Investment Builder pot at a different time to the DB pension? So could I take my additional DC pot a couple of years earlier but leave the DB bit until I actually stop working?

Thanks!

PJM_62

As I understand it :

Any changes to scheme only affect your benefits built up after that point. Benefits built up before that get ring fenced.

Like any DC scheme, you can access the IB pot from age 55 and make withdrawals using something like UFPLS.