TPS and USS advice please?

Yet_More_Puddylove

Hi all
I'm in my early fifties, and have a Teachers Pension Scheme pension with a NPA of 60 years.
I am currently paying into the University Superanuation Scheme, paying in an extra 3% above the employee contributions.   For  USS, it seems my retirement age will be 66 years.   
I'll also get full State Pension at 67 years.

I earn around £80k annually, and am considering putting a little more aside for my pension - but I find the USS valuation and contribution changes concerning - I can't keep up with the latter!

So my questions are;

1. Will I be able to receive the TPS payment from the age of 60 if I continue working as I am - or will it be deferred until I actually retire?
2. Is it a good idea to make additional contributions to the USS - and am I correct in thinking it will all go into the Investment Builder part?
3. Should I start a SIPP instead?

I have an ISA where I've saved the state pension amount to cover me from 65 to 67, incidentally.
Thanks for any help.

Dazed_and_C0nfused

Do you mean you are no longer employed by the employer you were in the TPS with?

Yet_More_Puddylove

Dazed_and_C0nfused said:

Do you mean you are no longer employed by the employer you were in the TPS with?

Apologies - yes - I no longer pay into TPS.

zagubov

It may be tempting to take the TPS on your 60th birthday and continuing to work while paying into the USS.

Other posters here have mentioned this could lead to a hefty tax bill  unless you invest a major portion of your earned salary into the USS pension or other new pension provision.

I can't advise what would be best but others may be able to offer advice. It would be helpful if you can identify the following information.

Are you considering working full time after starting to collect your TPS? Or perhaps using that pension to reduce your workload and gi part-time?

Is your current job eligible for membership of the TPS, even if you've not personally chosen to take that on? If the answer's yes, you may not be able to take a full pension while you continue working.

It may be the case that you may be better off collecting a sightly actuarially adjusted (reduced) TPS pension at least a day before your retirement. You may want to google the "one day rule".

Would you consider putting more of your salary into the USS and/or a SIPP?

Yet_More_Puddylove

Hi Zagubov
I am going to work FT after collecting TPS, but then gradually intend to reduce my work as I head towards 65.   My current employment is with a university - and TPS is not an option, only USS.

I'd be happy to pay more of my salary into either USS or a SIPP - as I said I'm a bit spooked by the rapid and unpredictable changes occurring with the US scheme at the moment so that's what I'd really like advice on.

Finally - I haven't heard of the 'one day rule' so I'll have a google - thank you.

Tomatillo

I started a similar thread about choosing between additional contributions to USS or SIPP a few months ago. The general view then was that the uncertainties around USS shouldn't prevent additional contributions because all investment builder funds should be ring fenced and unaffected by the current controversies. The advantage of USS is that the fees are subidised so for most funds you don't pay any. Of course you are limited to a relatively small number of choices of funds. 

Yet_More_Puddylove

Tomatillo said:

I started a similar thread about choosing between additional contributions to USS or SIPP a few months ago. The general view then was that the uncertainties around USS shouldn't prevent additional contributions because all investment builder funds should be ring fenced and unaffected by the current controversies. The advantage of USS is that the fees are subidised so for most funds you don't pay any. Of course you are limited to a relatively small number of choices of funds. 

Thanks, Tomatillo.  
Do you have a link to the thread so I can read it please (I did try a USS search but didn't find anything much)?

Tomatillo

I think the thread I'm thinking of is this one https://forums.moneysavingexpert.com/discussion/6254782/pension-scheme-deficit-how-much-to-worry/p1 

the Investment builder/Sipp discussion was just one part of it. There are quite a few members of USS on here and often threads from people worrying about the mess it appears to be in!

swindiff

USS investment builder is my choice for extra contributions over a SIPP, with my University offering salary sacrifice it is a no brainer.  You also have the advantage that when your tax free sum is calculated it is calculated against the pension as a whole (DB and DC).  Therefore you will be able to get much more of the money out from the investment builder tax free than you would from a SIPP.

The USS tax free lump sum is calculated as 25% of 20 x annual DB pension + DB lump sum + DC pot.

Assume you start paying into a SIPP and that you have £100k when in it when you want to retire, you would get £25k tax free and the rest would be taxable at your normal rate.

Now assume that you have the same £100k in the USS investment builder, but you also have a modest USS DB pension of £5k/year.  The total value would be £5k x 20 + £15k + £100k, that's £215k, 25% of which you can take tax free.  You could therefore take £53,750 tax free compared to the £25k tax free from the SIPP + the £15k lump sum from the USS DB pension.
That is an extra £13,750 in tax free cash, and the bigger your DB pension is the better it gets.

Also as has already been mentioned, another benefit is the USS Investment builder is fully subsidised, so there are no fees to pay.

zagubov

Yet_More_Puddylove said:

Hi Zagubov
I am going to work FT after collecting TPS, but then gradually intend to reduce my work as I head towards 65.   My current employment is with a university - and TPS is not an option, only USS.

I'd be happy to pay more of my salary into either USS or a SIPP - as I said I'm a bit spooked by the rapid and unpredictable changes occurring with the US scheme at the moment so that's what I'd really like advice on.

Finally - I haven't heard of the 'one day rule' so I'll have a google - thank you.

The one day rule might just apply to TPS-eligible employment. If a worker receives a pension at their proper retirement age, they can continue their employment but mustn't earn more than their salary of reference, which would be calculated based on their last TPS-pensionable salary. If they do, their pension will be clawed back by the taxman to bring them back down to their salary of reference, and a big part of their pension is lost, This means unless they cut back their income they'll end up working at least part of their job for no real benefit. If you change jobs so you're outside the educational sector this doesn't apply. Those universities (possibly older ones) whose employees can't access the TPS might be safe but you need to be sure of this.

If your workplace is eligible for the TPS one loophole might be to take the pension before your retirement age, and receive an actuarially reduced (ie incomplete) pension, which you're committed t for life. The reduction/abatement may be minor, if say you retire just before your birthday, even if by one day, but it'll stay that way permanently. However, you can earn as much as you like without losing your pension, and your HR/payroll departments' paperwork becomes easier.

If you were continuing in a TPS eligible post you'd have to take a new post with a new job title and employee number, even if it's with the same employer after at least a day's gap of being out of work. I'm not sure whether you're in this position. Your union rep and the pension agency can give better info. As the TPS can't give financial advice (just like us) you'd better prepare your questions so they can be answered with yes or no. Good luck - it's worth investigating as it's easy to blunder into a situation where you miss out on earnig what you're capable of and/or receiving the penison you've paid into.

Yet_More_Puddylove

swindiff said:

USS investment builder is my choice for extra contributions over a SIPP, with my University offering salary sacrifice it is a no brainer.  You also have the advantage that when your tax free sum is calculated it is calculated against the pension as a whole (DB and DC).  Therefore you will be able to get much more of the money out from the investment builder tax free than you would from a SIPP.

The USS tax free lump sum is calculated as 25% of 20 x annual DB pension + DB lump sum + DC pot.

Assume you start paying into a SIPP and that you have £100k when in it when you want to retire, you would get £25k tax free and the rest would be taxable at your normal rate.

Now assume that you have the same £100k in the USS investment builder, but you also have a modest USS DB pension of £5k/year.  The total value would be £5k x 20 + £15k + £100k, that's £215k, 25% of which you can take tax free.  You could therefore take £53,750 tax free compared to the £25k tax free from the SIPP + the £15k lump sum from the USS DB pension.
That is an extra £13,750 in tax free cash, and the bigger your DB pension is the better it gets.

Also as has already been mentioned, another benefit is the USS Investment builder is fully subsidised, so there are no fees to pay.

Thank you swindiff, for the clear explanation - I'm mathematically challenged at times, but I managed to follow it.    It does seem I'd be better paying more into the USS investment builder, rather than a SIPP.