USS - General discussion

Simes122

MPLMPL said:

Simes122 said:

swindiff said:

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

Yes, that’s what I’ve seen on here and what I discussed above.  The benefit conversion modeller shows me a different outcome.  If I put in £4000 dB pension, and £180000. By the above, 20 x 4000 = 80000.  Plus £12000 = 92000.   + 180000 = £272000 x 25% = 68000 tf ls.  The modeller shows max tax free ls of £47332.    

https://www.ussbenefitmodeller.co.uk/benefit_conversion

If you want to calculate the maximum tax-free you can take from the investment builder when linked to the DB income builder, don't use the entire investment builder in the calculation, do the following. This leaves the remaining investment builder uncrystallised (and available for UFPLS or transfer out to a SIPP).

As you state, 20x DB + DB lump sum i.e. 23 x DB.
Mutliply this by 0.25.
Subtract the DB lump sum (3 X DB).
Divide this by 0.75 to give the total IB to take tax-free by this method.
Probably easier to show with your numbers:
23 x £4000 = £92000.
£92000 x 0.25 = £23000
Subtract the standard DB lump sum: £23000 - 3 x £4000 = £11000.
This is 75% of the IB that you will take by this method, so £11000 / 0.75 = £14667
This is the maximum TFLS that you can take be linking to the DB pension by this method. The remaining £165333 of your investment builder would be uncrystallised i.e. with 25% available tax-free when you decide to take it.

Using this method, for every £1000 of DB you can take £3666.67 of your investment builder entrirely tax-free. Any left over investment builder can be left uncrystallised.

When you enter £1800000 in the benefit conversion tool you are effectively asking it to commute the remainder to additional DB pension.

If you plug £4000 DB and £14667 in the modeller, you will get these numbers. If you start to increase this, it will start to commute the excess to a higher DB pension.

Thanks for this - I've not seen it shown like this - albeit it throws my assumptions somewhat in terms of the size of my TFLS I was expecting!

My question then.   Would I not be better off doing the following:

Take the standard 3 x 4000 = £12000 TFLS at retirement, leaving me with £180,000 in my IB uncrystallised.

Because for just  £2467 extra TF cash using the hybrid scheme above, it'll have cost me £14667 from my IB using the above approach.  That doesn't seem like a great deal?

Simes122

swindiff said:

That seems to be about the value of 25% of your DC pot plus your DB lump sum. Not taking into account 20x your annual pension. I have no idea why that would be the case. I have just put 4k annual pension with 180k dc pension into the modeller and I get the same sort of figures as you. Just over 49k max tax free cash.

The modeller then automatically converts the extra cash into additional annual pension. Increasing it from 4k to just over 7.3k. 

Your DC pot is very high in comparison to your DB pension. I don't know if that is relevant at all?

I've only been at the Uni for 5 years or so, but have been squirrelling loads into DC.  It might be that which causes the issue - not sure?  It makes the hybrid TFLS look really bad value for my circumstances - I think!

swindiff

How have you been putting into the USS DC before working at your university?

Simes122

swindiff said:

How have you been putting into the USS DC before working at your university?

I haven't.  I started in 2015 and have been squirrelling into it since.

MPLMPL

Simes122 said:

Because for just  £2467 extra TF cash using the hybrid scheme above, it'll have cost me £14667 from my IB using the above approach.  That doesn't seem like a great deal?

Why not? Remember the £14667 is what you are taking from the IB in addition to your standard 3 x DB TFLS of £12000, so you would be taking a TFLS of £26667.
You're getting an extra £11000 tax-free that you would pay tax on if you don't take it with the DB.
If you don't take any IB when you take your DB, then as you say you will have £180000 uncrystallised. If you take this by UFPLS or transfer to a SIPP for flexi-access drawdown, you will be able to take 25% tax free i.e. £45000.
If you take the £14667 with your DB you leave £165333 uncrystallised. If you crystallise this and take this remainder by UFPLS etc, you will get £41333 of it tax free. Added to the £14667 gives £56000 of your IB tax-free and £124000 taxable.
If you don't use the link to the DB, then you will have £45000 of your IB tax-free and £135000 taxable.
Both methods take the full £180000, but the first method gets you a bit more tax-free than the other.
Admittedly this is only a gain of £2200 if paying basic rate tax (20% of £11000).
The big winners of this linking of DB to invest builder are those with larger DB pensions, e.g. someone with a DB of £20000 would be able to take £73333 from the IB tax-free.
USS_tish can take the whole of their investment builider tax-free (£65000) as they have a DB of £23000 this in addition to the standard DB TFLS of 3 x £23000. The maximum they could take by this method (if they had that much in their IB) would be £84333.

Simes122

MPLMPL said:

Simes122 said:

Because for just  £2467 extra TF cash using the hybrid scheme above, it'll have cost me £14667 from my IB using the above approach.  That doesn't seem like a great deal?

Why not? Remember the £14667 is what you are taking from the IB in addition to your standard 3 x DB TFLS of £12000, so you would be taking a TFLS of £26667.

Ahhh!  Thanks!

uss_tish

I found the modeller very confusing. As others have noted, it automatically converts excess DC to pension,  if the total value exceeds you max TFLS. Yet when I phoned USS to ask how to express on the retirement form that I didn’t want any excess DC converted to pension and for it to be left invested in my DC pot they told me they would never automatically convert DC to pension anyway as it wasn’t easy - yet why does their modeller emphatically do this? In my case isn’t an issue as I’m within my 25% tax free limit.

As you can tell I’m a newbie to all of this but the modeller wasn’t helpful. Actual quote slightly more helpful but still needed a few phone calls when it came to completing the retirement notification form.

P.S. For those of you thinking of retiring soon from USS,  please check carefully your employment history. There were two errors on my continuous service record one with current employer and one going back 15 years - easily rectified but consequences would have meant a £1,000 pa pension loss so quite significant.

ElmoR

What sort of errors were they @uss_tish?

Seems we have to be continually on the ball with this lot!

uss_tish

Elmor R - the one with current employer was completely inexplicable showing a six month gap when I hadn’t changed roles or had time off. The one with previous employer involved maternity leave incorrectly showing as a gap in service. To be honest I wouldn’t thought of checking but a colleague retiring from a different scheme advised me to check as errors can be made. 

swindiff

MPLMPL said:

Simes122 said:

swindiff said:

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

Yes, that’s what I’ve seen on here and what I discussed above.  The benefit conversion modeller shows me a different outcome.  If I put in £4000 dB pension, and £180000. By the above, 20 x 4000 = 80000.  Plus £12000 = 92000.   + 180000 = £272000 x 25% = 68000 tf ls.  The modeller shows max tax free ls of £47332.    

https://www.ussbenefitmodeller.co.uk/benefit_conversion

If you want to calculate the maximum tax-free you can take from the investment builder when linked to the DB income builder, don't use the entire investment builder in the calculation, do the following. This leaves the remaining investment builder uncrystallised (and available for UFPLS or transfer out to a SIPP).

As you state, 20x DB + DB lump sum i.e. 23 x DB.
Mutliply this by 0.25.
Subtract the DB lump sum (3 X DB).
Divide this by 0.75 to give the total IB to take tax-free by this method.
Probably easier to show with your numbers:
23 x £4000 = £92000.
£92000 x 0.25 = £23000
Subtract the standard DB lump sum: £23000 - 3 x £4000 = £11000.
This is 75% of the IB that you will take by this method, so £11000 / 0.75 = £14667
This is the maximum TFLS that you can take be linking to the DB pension by this method. The remaining £165333 of your investment builder would be uncrystallised i.e. with 25% available tax-free when you decide to take it.

Using this method, for every £1000 of DB you can take £3666.67 of your investment builder entrirely tax-free. Any left over investment builder can be left uncrystallised.

When you enter £1800000 in the benefit conversion tool you are effectively asking it to commute the remainder to additional DB pension.

If you plug £4000 DB and £14667 in the modeller, you will get these numbers. If you start to increase this, it will start to commute the excess to a higher DB pension.

Do you know if you are actually allowed to do this, as I have not seen this option suggested anywhere else?