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USS - General discussion

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  • 2nd_time_buyer
    2nd_time_buyer Posts: 807 Forumite
    Part of the Furniture 500 Posts Name Dropper Combo Breaker
    edited 21 February at 12:35PM
    Given the round of redundancies in the HE sector, can anyone advise or give their experiences of the following scenario:

    Redundancy payment, circa £50,000

    1. The first £30,000 is tax free - this is statutory, yes?
    2. At the age of (let's say) 59 and six months, there is no requirement to take USS pension, thereby not triggering ERF?
    3. At the age of (let's say) 65, same as above, there is no requirement to take USS pension?
    4. If not taking pension, in either of above cases, the £20,000 taxable proportion from the redundancy payment can be input into the pension pot (notwithstanding the annual allowance for the moment)?

    Any views/advice on this?

    Thanks 

    As far as my understanding goes:
    (1) Yes, the first £30k is free of tax
    (2) and (3) You don’t have to take the pension at either 59 or 65.
    (4) If your employer is ok with doing that, then yes.

    The is (at least one) caveat to the above about the triggering of the ERFs that hinges on your normal pension age. Contributions made up to 2011 (possibly starting in 95, but that will need someone else to confirm) have a normal pension age of 60 which, ordinarily, would mean no ERF being applied to that portion of the pension if you take it once you’re 60. But this is only true if you are still in work when you turn 60 and take your pension after that date. If you finish work before reaching 60 then that normal pension age (of 60) changes to 63.5. The net result is that if you finish at age 59 but then decide to take your pension before reaching 63.5 then ERFs will be applied to those contributions. Note that this doesn’t apply to other portions of your pension (e.g., where the normal pension age is 65, or 66 as it is currently).

    In short, if you finish work at 59 and then take the pension at 60 (or 61, or 62, or even 63 years, 5 months and 29/30 days) an ERF for taking it early will apply to those pre-2011 contributions.
    However, if you finish work after turning 60 and take your pension at that point (I.e., also at 60) then the ERF won’t be applied to the pre-2011 contributions.
    Barralad77 That is very interesting about the ERFs for retirement pre- post- 60. Thanks very much. Is that detailed in the scheme rules somewhere?
  • PJM_62
    PJM_62 Posts: 203 Forumite
    Part of the Furniture 100 Posts Name Dropper
    Did you do the calculations for taking the (reduced) RB at 56 , and not using the IB.
    8 years of that paying out (index linked) + IB growth  - versus - waiting before taking RB.

    Depressing consideation warning ...
    In the event of (possible early) death :
    RB dies with you.
    IB becomes part of your estate.
  • PJM_62, I presume your response was to my post? Thanks for replying. I will do more precise calculations about RB or IB/ERFs/reverse commutation etc as I get a bit closer to finishing work, but thanks for the tip about IB and estates.

    HE...

  • PJM_62
    PJM_62 Posts: 203 Forumite
    Part of the Furniture 100 Posts Name Dropper
    Anyone able to help me with the calculation for this:

    Within the next year, once I'm past 60, I plan on stepping from flexi-retirement into full fat retirement.
    My USS pension , along with another small DB one, will give me a combined 18k. So I'll be paying 20% tax on 5.5k or so.
    I also have a good chunk in my IB pot, which I want to start drawing down to help towards funding family members ISAs each year.
    How much can I drawdown each year, using UFPLS (25% tax free), to take me to an income point just before the DBs + IB combined would mean I hit the 40% tax mark.

    Also , I guessing that I would need to factor in the dreaded tax due on interest from (non ISA) cash savings, (above the allowance) . 

    TIA

  • Barralad77
    Barralad77 Posts: 79 Forumite
    10 Posts Name Dropper
    Assuming you’re in England (going by the reference to 40% tax) then I think it’s calculated as (£50,270 - £18,000) - any taxable interest on (non-ISA) savings.

    [I don’t think it’s the interest you earn above the allowance (I.e.. £1,000) that you need to factor in.]

    So, for example, if your gross pension is £18,000 and you earn £2,000 taxable interest then you should be safe drawing down £30,269.

    Call it £30,000 and you should receive £25,500 net (the IB would attract a net tax rate of 15%).

    Your total tax bill for the year would work out at:
    £1,100 on the pension (approx.)
    £200 on the interest
    £4,500 on the IB drawdown
    Total tax approx. £6,800

    As ever, the above is only my take on these things, so best to check with others.
  • NoMore
    NoMore Posts: 1,584 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Assuming you’re in England (going by the reference to 40% tax) then I think it’s calculated as (£50,270 - £18,000) - any taxable interest on (non-ISA) savings.

    [I don’t think it’s the interest you earn above the allowance (I.e.. £1,000) that you need to factor in.]

    So, for example, if your gross pension is £18,000 and you earn £2,000 taxable interest then you should be safe drawing down £30,269.

    Call it £30,000 and you should receive £25,500 net (the IB would attract a net tax rate of 15%).

    Your total tax bill for the year would work out at:
    £1,100 on the pension (approx.)
    £200 on the interest
    £4,500 on the IB drawdown
    Total tax approx. £6,800

    As ever, the above is only my take on these things, so best to check with others.
    That's not maximising the UFPLS he could take, using your figures it would be the £30000/0.75 = £40000, so 10k tax free and the rest adds to his DB income to keep it in the 20% tax bracket.
  • Barralad77
    Barralad77 Posts: 79 Forumite
    10 Posts Name Dropper
    But doesn’t taking £40,000 take them over the £50,270 threshold for higher-rate tax? If the pension is £18,000 and the interest on savings is £2,000 then drawing down £40,000 from the IB will mean a total income of £60,000. I know that 25% of the IB is tax-free but it’s still treated as income isn’t it? Just as the £2,000 of interest is treated as income even though you can take £1,000 of it tax free? Maybe my misunderstanding is all wrong.
  • NoMore
    NoMore Posts: 1,584 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 25 February at 3:15PM
    No the 25% tax free from a pension is not treated as income for any income tax calculations.
  • Barralad77
    Barralad77 Posts: 79 Forumite
    10 Posts Name Dropper
    NoMore said:
    No the 25% tax free from a pension is not treated as income for any income tax calculations.
    Oh, thanks for that! Very useful to know.
  • PJM_62
    PJM_62 Posts: 203 Forumite
    Part of the Furniture 100 Posts Name Dropper
    Thanks guys.  Thats really helpful.
    Its more UFPLS allowed than I had envisaged.  I'd be able to move all the IB into ISAs over a couple years.

    I guess next question is , 
    Is there any reason I shouldnt assume this is a sensible approach ?   
    Any good reason to keep the money in the IB  - versus - drawing down to fund ISAs ?
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