USS - General discussion

ussdave

This was discussed at length in another thread (I'll try to find it) and the upshot was that the remaining IB does still have a tax free element and can be drawn via UFPLS

MPLMPL

That's no longer the calulation though. As the modeller has commuted your PCLS of 3 x pension, your DB pension for this calculation is £21118 and there is no 3 x £21118 PCLS. Why it automatically chooses this in the modeller is another matter.
The calculation then becomes £21118 x 20 + (£180180 - £39214 the ammount left uncrystallised in IB) =  £563326
£563326 x 0.25 = £140831. (a few £ difference due to rounding).
This is then the tax-free cash that you take, with the remaining £39214 uncrystallised in your IB - this still has 25% tax-free available.
£140831 + £39214 = £180045 near enough your IB that you started with.

If you don't want to commute your PCLS to extra pension, then you should be able to get £19260 x 3.667 = £70626 out of your IB in addtion to the 3 x £19260 PCLS = £57780. This gives a total tax free lump sum of £128406. 
In addition to this, it should leave £180180 - £70626 = £109554 uncrystallised in your IB (i.e. 25% tax free still available).
If you want to work that calculation it is £19260 x 20 + £19260 x 3 + £70626 = £513606
£513606 x 0.25 = £128401.

If you then crystallised the remaining IB at some future point, this would give you another £27228 tax fee. Add this to £128406 that I calculated above gives you £155794 total (as in your calculation).

ussdave

MPLMPL was bang on last time we discussed this too

swindiff

Cheers MPLMPL, the 2nd option certainly seems far more preferable to me.  Makes you wonder how many people take their pension completely unaware of this.  I can only assume they show this calculation as the default as it gives the max tax free lump sum up front?  Only thing i'm not sure of is the 3.667 multiplier, where does that come from?

MPLMPL

Maths innit. 

For every £1 of your DB pension you can take an additional 11/3 or £3.667 of your Investment Builder tax free (i.e. maximum amount). See below to see how you get there.

To calculate IB to use to get max TFLS

 ((23xDB/4)-3xDB)/0.75

The 23xDB is the calculation you are familiar with i.e. 20 X DB plus the 3 x DB PCLS then divided by 4 to get you max TFLS if no IB used in the calculation. 
The 3 x DB PCLS is then subtracted from this to leave the remaining TFLS that can be taken. We are taking this TFLS from the IB, so we now need to include this IB amount in the calculation. As this is from the IB, this now needs to be included in the original calculation. The number we currently have arrived is only 75% of the IB that you can take (as when you add it to the calculation it generates another 25% of tax free cash). This is why you then divide by 0.75. Not sure if that makes sense, or makes it easier to understand, it's getting late, might be easier by using some real numbers. I may have posted something like this on another thread, but on phone at moment.

Treat it as a DB of £1. Calculation becomes 
23/4 - 3  = 11/4 

Dividing by 0.75 is dividing by 3/4 same as multiplying by 4/3, so 11/4 X 4/3 = 11/3 = 3 and 2/3 = 3.667.

If you stick it in Excel/Google Sheets  etc. then type: =((A1*23/4)-(3*A1))/0.75 where cell A1 is the cell where you enter your DB annual pension sum.

ussdave

I think this is the previous thread where we discussed this, including some of MPLMPL's other examples:

https://forums.moneysavingexpert.com/discussion/6439958/uss-vs-tps-university-pension-advice-needed/p3

swindiff

Many thanks MPLMPL, that makes sense.  I look forward to seeing if Bluenose1 manages to get USS to proceed with this plan in January.  Cheers ussdave, I posted in that thread and forgot about it lol
I still have 7 years to go until my planned retirement date, but it's good to know the options well in advance.

bluenose1

swindiff said:

Many thanks MPLMPL, that makes sense.  I look forward to seeing if Bluenose1 manages to get USS to proceed with this plan in January.  Cheers ussdave, I posted in that thread and forgot about it lol
I still have 7 years to go until my planned retirement date, but it's good to know the options well in advance.

Hoping it wont be a problem when i ask for the information, in the Retirement Choices section on the intranet it does mention increasing tax free lump sum.

Maximum tax-free cash

If you decide to maximise the amount of tax-free cash you take on retirement, you would first take a lump sum from your Investment Builder if you have funds available. Subject to HMRC’s limits, you could increase your tax-free lump sum from your Retirement Income Builder benefits, with the remaining benefits being paid as an annual pension.

You can view the available options by entering your estimated retirement benefits from this modeller into the Benefit Conversion Tool.

swindiff

I just noticed the "Further modelling options" on that page.  If I put the amount that I want to keep in the IB for future drawdown then the figures match up exactly to MPLMPL's calculations

Simes122

swindiff said:

I just noticed the "Further modelling options" on that page.  If I put the amount that I want to keep in the IB for future drawdown then the figures match up exactly to MPLMPL's calculations

Yes, this is exactly what I used to maximise everything to the way I wanted, rather than the way USS wanted