USS - General discussion

PJM_62

How come the TFLS for the middle Standard option isn't just 3 x 34795 ?

Also worth bearing in mind that pension pots will soon be included for IHT

NTFI19081

Hi Everyone, will appreciate any thouughts on my situation, incliuding my quandry about the commutation at the bottom

I am 56 and  plan to leave my role (not redundancy under current plan). If I draw my USS pension it will be 22k + 66K TFLS as standard. If left to 60 (I have 11 years prior to age 63.5, so ERFs not as bad at 60), I get 26,200 + 78,600 TFLS. I *think* therefore taking the 22k now makes sense as the 'payback period' if I take the pension at 60 is 18 year i.e. age 78.

I have around 100k in the investment builder, and if I add this to other SIPP income and put my TFLS into this pot  'in theory' and factor in some growth will have a DC pot of around 450k by age 60. Full state pension at 67 (hopefuly that age does not rise).

I will be engaged with a company connected to my current employer on a consultancy contract for a few years, enabling me to draw USS. The terms for this I very favourable, and require a day a week. I also have a couple of other income (work) sources c. 15k I can access until 60.

My thinking is that it makes sense to draw the USS and let the DC pot grow. I am happy to go and find some more part time work. At 60 I will have (in todays money) 22k p.a. USS and 18k DC drawdown (4%), and then state pension at 67. I may work a little part time beyond 60 to top up.

Was planning to leave some of DC to kids for house deposit etc, and this whole DC thing will need rethinking re: new IHT rules.

Psychologically, the 22k USS seems a bit low (had anticipated 25k), and so I am considering buying more pension with TFLS. Is this a good deal? Or, is it a better deal the other way, buying more TFLS with pension. If mnore TFLS, the issue becomes what to do with it as I wold be using it for drawdown income eventually.

Any thoughts at all will be very much appreciated.

PJM_62

You clearly have a handle on it all 👍

But, what's your 'number' ?  ie, have you calculated how much you will actually need each year? 
What's the purpose for any amount way above that?

NTFI19081

PJM_62 said:

You clearly have a handle on it all 👍

But, what's your 'number' ?  ie, have you calculated how much you will actually need each year? 
What's the purpose for any amount way above that?

Ah, yes, I know my number and break even 56-60, 3k surplus 60-67 and 24k surplus 67+. Though assume use of DC for kids by then. Feels weird to be even able to leave at 56 - but it gives me freedom and I dont mind earning, just more flexibly.

LL_USS

PJM_62 said:

How come the TFLS for the middle Standard option isn't just 3 x 34795 ?

Also worth bearing in mind that pension pots will soon be included for IHT

The TFLS is taken out as combinatin of DB and DC. As this person has a very large DC, there's still DC left in option B. The TFLS in option B is 34795*6.667= 231,970 something. So yes it is right. The DC part used in that LS is about 127K (3.667*DB) and thus still about 77K leftover in the DC pot.

I have just realised one more thing. Option 3 there is some DC used and commuted (to buy more DB and thus max the TFLS) but this option 3 also means it triggers MPAA (which is important for this case as it is partial retirement and the person still wishes to contribute further to the pension)

Nick_Dr1

LL_USS said:

PJM_62 said:

How come the TFLS for the middle Standard option isn't just 3 x 34795 ?

Also worth bearing in mind that pension pots will soon be included for IHT

The TFLS is taken out as combinatin of DB and DC. As this person has a very large DC, there's still DC left in option B. The TFLS in option B is 34795*6.667= 231,970 something. So yes it is right. The DC part used in that LS is about 127K (3.667*DB) and thus still about 77K leftover in the DC pot.

I have just realised one more thing. Option 3 there is some DC used and commuted (to buy more DB and thus max the TFLS) but this option 3 also means it triggers MPAA (which is important for this case as it is partial retirement and the person still wishes to contribute further to the pension)

Can you expand on how option 3 triggers MPAA? I assume from your comment it is because there has been some commutation, but I'm not clear why commutation itself triggers MPAA? Thanks

13FL

Barralad77 said:

swindiff said:

I am sure you will have all received this email?

According to our records, you used our Benefit Calculator between 26 April and 27 May this year.

We've identified that during this time the calculator was over-estimating the value of some members' Retirement Income Builder benefits, therefore you should not use the estimates provided for financial planning.

The reason this has happened, is that when we updated your record in April to add in the last year of pension built up, the Benefit Calculator used a higher amount for this year in error.

This problem has now been resolved, and you can log in to myuss and navigate to the "Your Pension" section to rerun your illustrative projections via the Benefit Calculator.

We apologise for any inconvenience this may have caused.

The USS team.

Yes. Am actually surprised that they caught it (I thought that only we were the ones doing that….). Simply confirms my view that the calculator shouldn’t be trusted. As for 13FL’s situation, it begs a serious question. Namely, if they provide a quote based on erroneous numbers, do they not have to honour that quote? The online calculator is one thing (and there’s a line about it being merely an estimate that is subject to change etc.) but a quote is something else entirely. Will await the outcome.

Just to follow up on this: 

Simply confirms my view that the calculator shouldn’t be trusted. As for 13FL’s situation, it begs a serious question. Namely, if they provide a quote based on erroneous numbers, do they not have to honour that quote?

I was waiting (hoping) for my notification of benefits letter this week as my pension will start on 01 Aug but alas even though the website states:

You’ll receive a letter confirming your benefits within the two weeks leading up to your retirement date or within a few days of us processing your benefits, if the form wasn’t returned on time.

(I had returned the form in ample time), it appears that the notification will be around the date of retirement.

 Anyhow, I spoke to the USS helpline and their rather casual comment was don’t worry what you have on the quote is real. After highlighting why I was slightly concerned wrt to the email received (and my numbers when comparing the quote v my modelling using the benefit calculator during the window of concern – shown below for information), I was advised that not all members would/may have been impacted (as their email sort of implies – but we would not know if we had been from the email).

 So I think bottom line would be that the numbers in the provision retirement quote can be taken at face value (subject to any market fluctuations before disinvestment), as one would hope. So a little relieved here and it would appear I was not one of the members impacted by the benefit calculator glitch.

Numbers for clarity:

 01 May Quote:                                               AP 36,301; Max TFLS 242,008

16 May Solely using the calculator:               AP 36,846; Max TFLS 245,643

(during the window when potential

glitch with the calculator)

23 July (today) Using the calculator and

inputting numbers from quote:                    AP 36,301; Max TFLS 242,009

mini850

LL_USS said:

Hi everyone, my apology I am going off the above very interesting discussion of how binding are the quotes from USS. It is dreadful to think I'd plan my retirement based on some quotes that are not accurate. However, that would be my future problem, not now.

I did lots of reading around the USS forums here before to grasp basic understanding of this issue, and to outlines options I have in the next 15-20 years of work (or whether I can retire earlier). Then I thought the rough understanding is enough, things still can change, I can leave the issue for now.

Yet a senior colleague of mine has just received their quotes and they send them to me to ask for my opinion. There are three options: Max DB, Standard, and Max TFLS. They have about 200K in the DC pot. This is a very good pension and I wish I could be anywhere near this when I retire.
I just have a comment that it seems commuting DC is not as bad as I've heard in these forums.

	Max DB	Standard	MAX TFLS
DB	39,373.80	34,795.56	37,410.72
TFLS	204,643.37	231,970.40	249,404.24
DC leftover	0	77,059.65	0

I've heard from these forums here that I should not choose commutation as the rate is not great. It means take the middle option and leave some DC to be invested with USS.

But the final option they get higher TFLS (about 17.5K LS) and 77KDC-17.5=60K can buy about £2,740/annual pension if this person (approaching 60 year old) is in good health and buying as a single income that rise with CPI.

The difference in DB between option 2 and 3 is only £2,615 less, not far off £2,740/year figure. Meanwhile, if this person is going to make good use of all the max TFLS then no need to worry about how to draw down from this 77K DC invested in future years.

I would lean towards Option 3. My colleague thinks I am an expert with finance but no way, I just admit I only have this vague understanding (I would learn more when I am closer to retirement). Do I understand the meaning of the numbers above right?
Thank you

LL

In relation to commutation it is worth noting that the increased annual pension amount gained from commutation is not included in any benefit received by a spouse if the recipient dies first. I worry about this, as my pension will be much larger than my wife's and so lean towards thinking having the cash is better for her.

One other thing I've noticed is that the commutation factors will changed (as from 1st Oct 2025) and will be a little more favorable when exchanging lump sump for extra pension (say at 60yrs old sacrificing £10k of LS will now give extra £477 pension p.a rather that an extra £440).

LL_USS

Nick_Dr1 said:

Can you expand on how option 3 triggers MPAA? I assume from your comment it is because there has been some commutation, but I'm not clear why commutation itself triggers MPAA? Thanks

@Nick_Dr1 Option 3 uses up all the DC and this DC is commuted to buy extra DB (you can see the increase in the DB in option 3, and this increase in DB also lead to a bit higher TFLS- and making this option MAX TFLS).
From my recollection from very established figures on the forum like @ussdave or @NickBFS @masonic (sorry if I quote/ interpret them wrong), I noted down this principle: "take max TFLS without commuting the DC for additional DB pension".

Some other notes I have also include "taking TFLS from DB does not trigger MPAA" (bring it down from 60k/year to 10k). But commutation/ crystalisation of your pension will trigger it. This is my understanding.

LL_USS

@mini850 could you please please let me know where to get the information of USS commutation factors please please :-). I don't know where to find that. Thank you.