contributing to USS Investment Builder (Defined Contribution) vs. personal SIPP

rangorang

I've seen a few threads relating to USS (the pension plan for academic staff) and would love to see more comments on the scheme and company (which I am coming to dislike very much). I have excess money from my monthly salary that I want to invest in a pension and am trying to decide whether it's better for me to put that money in my Investment Builder (the Defined Contribution portion of the USS pension scheme) or in a personal SIPP that I opened with Hargreaves and Lansdown. Even though the form in which tax relied is given is quite different, I am told that the tax benefits are identical; it is just that I receive 25% of the tax relief in the form of a bonus on the SIPP whereas I have to claim the relief in my tax returns for the  Investment Builder. So it is basically an investment choice. Personally, I hate dealing with USS. I find the explainers about our funds superficial and unhelpful, and the people on the phone also have little insight to offer. They make it clear that their work for our employers, not for us.

Dealing with HL is a much more enjoyable experience. Presumably, USS fees would be lower for managing funds, but this is difficult to be sure of because they don't provide prospectuses for the funds, and there is a lack of transparency. I realize that my dislike of USS may not be best basis for making this decision, so I thought I would solicit the views and advice of other in this forum. 

Dazed_and_C0nfused

Even though the form in which tax relied is given is quite different, I am told that the tax benefits are identical; it is just that I receive 25% of the tax relief in the form of a bonus on the SIPP whereas I have to claim the relief in my tax returns for the Investment Builder. 

Are you certain about that??

It would be very unusual as the vast majority of contributions are either relief at source (where the basic rate tax relief is added by the pension company) or net pay, where the pension contribution is taken before your tax is calculated and you would never ever include net pay contributions on a Self Assessment return.

There's also salary sacrifice but that is where you don't contribute anything, your employer makes larger contributions

atw_uss

I share your wariness with USS @rangorang and am in a similar predicament. I pay extra each month into the IB and this is done via salary sacrifice, so is very tax efficient. However, I am aware not all employers do this, so definitely check. I believe it would be hard to beat via a SIPP (except via big differences in investment returns which is possible too), but someone more knowledgeable will be along shortly to provide a more informed opinion, I hope.
There are limited investment options in USS and I’ve defaulted to the ‘do it for me’ ones for now. 

Check the (appalling imo) proposed changes to the pension due 1st April 2022 too (if approved). Union ballot will arrive next week …

rangorang

Thanks for your response! I think this illustrates part of the problem. I spent an hour on the phone with HMRC, raised a detailed query about this with my employer, and spoke with at length with someone at USS by phone, and not a single one of this people were willing to tell me whether or not my AVC (additional voluntary contributions) are before or after tax. The unhelpfulness of the USS + my employer pension team is the main reason why I would be happier putting the money in a personal SIPP, where I am sure they would at least try to answer my questions. I realize happier does not = best investment decision, I'm just trying to figure things out. To make matters worse, although I have taken professional financial advice, my advisor only really knows about the US side of things and no UK financial advisor will speak to me because I am a US citizen!

I'll paste all the headings from my payslip below in case you or anyone can tell from looking at it whether my contribution is "relief at source" "net pay." If the sum of "USS DC AVC Match EES Salary Sacrifice" and "Taxable Pay" equals the exact amount of "Gross Earnings," (it does) would that likely mean that the second ("net pay") applies and I don't claim further relief on a tax return? Further, is it correct that those benefits after the same as a contribution to a personal SIPP, even though they are calculated differently?

Payments
Annual Salary
Annual Salary Retroactive
USS DC AVC Match EES Salary Sacrifice
USS Employee Salary Sacrifice New

Deductions

Description Amount YTD

USS DC AVC Non Match EES

PAYE and NI

PAYE

NI Employee

Balances
Gross Earnings
NIable Pay
PAYE
Taxable Pay

Dazed_and_C0nfused

Without the corresponding figures it's difficult to know what the answer is however if you have an option to contribute via salary sacrifice this is most definitely going to give a different outcome to relief at source contributions.

For example with relief at source if you contribute £100 this becomes £125 in your pension fund with the basic rate tax relief added.

But if you sacrifice £100 of your pay then your employer will add £100 to your pension and employer contributions do not attract any pension tax relief so you only have £100 in your pension.

But you have avoided paying tax and National Insurance on the £100 you sacrificed so the real cost to you is probably only £68 (assuming 20% tax and 12% NI).

Net pay gives a different outcome to both of the above.

atw_uss

I’m not sure I can be of much help here, but my payslip is very simple. The USS deductions are before tax in the left-hand column and have a + sign after them. I have noticed that since upping my contributions, I pay a lot less NI and tax!

Re. AVCs, this is tricky. I had one from my school-teaching days (Pru) and was transferred over to the Universities AVC. I’ve recently consolidated everything into the IB, as I was told they’ll all be moved over at some point. I agree it is as clear as mud!

Simes122

rangorang said:

I've seen a few threads relating to USS (the pension plan for academic staff) and would love to see more comments on the scheme and company (which I am coming to dislike very much). I have excess money from my monthly salary that I want to invest in a pension and am trying to decide whether it's better for me to put that money in my Investment Builder (the Defined Contribution portion of the USS pension scheme) or in a personal SIPP that I opened with Hargreaves and Lansdown. Even though the form in which tax relied is given is quite different, I am told that the tax benefits are identical; it is just that I receive 25% of the tax relief in the form of a bonus on the SIPP whereas I have to claim the relief in my tax returns for the  Investment Builder. So it is basically an investment choice. Personally, I hate dealing with USS. I find the explainers about our funds superficial and unhelpful, and the people on the phone also have little insight to offer. They make it clear that their work for our employers, not for us.

Dealing with HL is a much more enjoyable experience. Presumably, USS fees would be lower for managing funds, but this is difficult to be sure of because they don't provide prospectuses for the funds, and there is a lack of transparency. I realize that my dislike of USS may not be best basis for making this decision, so I thought I would solicit the views and advice of other in this forum. 

The rather compelling advantage of USS vs HL, if you can use salary sacrifice, is the NI saving.  I’m at a Scottish Uni, and because of the SNP’s horrible tax arrangements, I’m subject to a 53% marginal rate between 43k and 50k earnings.  41% tax and 12% NI, which would otherwise make me around £1500 a year worse off for the same pay spine point south of the border.  By making contributions to my DC pot to avoid that, I effectively can get £100 in pension, or £47 net pay.  If I went to HL, I’d get the basic tax relief, would have to claim back my HR tax relief via tax return and would not get the 12% NI saving.  So Sal sac makes USS a no brainier for me because of NI savings.

Southend_2

There are some real advantages of the USS IB over a SIPP.... firstly that you may be able to contribute via salary sacrifice, secondly that the fees are subsidised by the employers and thirdly that it is linked to your DB pension so you may be able to take more than 25% of your IB funds tax free on retirement if you're taking at the same time as the DB pension. 

Personally I am using IB contributions to increase my pension and a LISA to build funds to bridge the gap from retirement to taking USS pension (i am a basic rate taxpayer)

sheslookinhot

Simes122 said:

rangorang said:

I've seen a few threads relating to USS (the pension plan for academic staff) and would love to see more comments on the scheme and company (which I am coming to dislike very much). I have excess money from my monthly salary that I want to invest in a pension and am trying to decide whether it's better for me to put that money in my Investment Builder (the Defined Contribution portion of the USS pension scheme) or in a personal SIPP that I opened with Hargreaves and Lansdown. Even though the form in which tax relied is given is quite different, I am told that the tax benefits are identical; it is just that I receive 25% of the tax relief in the form of a bonus on the SIPP whereas I have to claim the relief in my tax returns for the  Investment Builder. So it is basically an investment choice. Personally, I hate dealing with USS. I find the explainers about our funds superficial and unhelpful, and the people on the phone also have little insight to offer. They make it clear that their work for our employers, not for us.

Dealing with HL is a much more enjoyable experience. Presumably, USS fees would be lower for managing funds, but this is difficult to be sure of because they don't provide prospectuses for the funds, and there is a lack of transparency. I realize that my dislike of USS may not be best basis for making this decision, so I thought I would solicit the views and advice of other in this forum. 

The rather compelling advantage of USS vs HL, if you can use salary sacrifice, is the NI saving.  I’m at a Scottish Uni, and because of the SNP’s horrible tax arrangements, I’m subject to a 53% marginal rate between 43k and 50k earnings.  41% tax and 12% NI, which would otherwise make me around £1500 a year worse off for the same pay spine point south of the border.  By making contributions to my DC pot to avoid that, I effectively can get £100 in pension, or £47 net pay.  If I went to HL, I’d get the basic tax relief, would have to claim back my HR tax relief via tax return and would not get the 12% NI saving.  So Sal sac makes USS a no brainier for me because of NI savings.

In what way are the SNP’s (Scottish Government) “tax arrangements” horrible?

Dazed_and_C0nfused

sheslookinhot said:

Simes122 said:

rangorang said:

I've seen a few threads relating to USS (the pension plan for academic staff) and would love to see more comments on the scheme and company (which I am coming to dislike very much). I have excess money from my monthly salary that I want to invest in a pension and am trying to decide whether it's better for me to put that money in my Investment Builder (the Defined Contribution portion of the USS pension scheme) or in a personal SIPP that I opened with Hargreaves and Lansdown. Even though the form in which tax relied is given is quite different, I am told that the tax benefits are identical; it is just that I receive 25% of the tax relief in the form of a bonus on the SIPP whereas I have to claim the relief in my tax returns for the  Investment Builder. So it is basically an investment choice. Personally, I hate dealing with USS. I find the explainers about our funds superficial and unhelpful, and the people on the phone also have little insight to offer. They make it clear that their work for our employers, not for us.

Dealing with HL is a much more enjoyable experience. Presumably, USS fees would be lower for managing funds, but this is difficult to be sure of because they don't provide prospectuses for the funds, and there is a lack of transparency. I realize that my dislike of USS may not be best basis for making this decision, so I thought I would solicit the views and advice of other in this forum. 

The rather compelling advantage of USS vs HL, if you can use salary sacrifice, is the NI saving.  I’m at a Scottish Uni, and because of the SNP’s horrible tax arrangements, I’m subject to a 53% marginal rate between 43k and 50k earnings.  41% tax and 12% NI, which would otherwise make me around £1500 a year worse off for the same pay spine point south of the border.  By making contributions to my DC pot to avoid that, I effectively can get £100 in pension, or £47 net pay.  If I went to HL, I’d get the basic tax relief, would have to claim back my HR tax relief via tax return and would not get the 12% NI saving.  So Sal sac makes USS a no brainier for me because of NI savings.

In what way are the SNP’s (Scottish Government) “tax arrangements” horrible?

They're certainly horribly complicated having nearly a dozen different tax rates covering earnings/pensions, interest and dividends.

Simes122

sheslookinhot said:

Simes122 said:

rangorang said:

I've seen a few threads relating to USS (the pension plan for academic staff) and would love to see more comments on the scheme and company (which I am coming to dislike very much). I have excess money from my monthly salary that I want to invest in a pension and am trying to decide whether it's better for me to put that money in my Investment Builder (the Defined Contribution portion of the USS pension scheme) or in a personal SIPP that I opened with Hargreaves and Lansdown. Even though the form in which tax relied is given is quite different, I am told that the tax benefits are identical; it is just that I receive 25% of the tax relief in the form of a bonus on the SIPP whereas I have to claim the relief in my tax returns for the  Investment Builder. So it is basically an investment choice. Personally, I hate dealing with USS. I find the explainers about our funds superficial and unhelpful, and the people on the phone also have little insight to offer. They make it clear that their work for our employers, not for us.

Dealing with HL is a much more enjoyable experience. Presumably, USS fees would be lower for managing funds, but this is difficult to be sure of because they don't provide prospectuses for the funds, and there is a lack of transparency. I realize that my dislike of USS may not be best basis for making this decision, so I thought I would solicit the views and advice of other in this forum. 

The rather compelling advantage of USS vs HL, if you can use salary sacrifice, is the NI saving.  I’m at a Scottish Uni, and because of the SNP’s horrible tax arrangements, I’m subject to a 53% marginal rate between 43k and 50k earnings.  41% tax and 12% NI, which would otherwise make me around £1500 a year worse off for the same pay spine point south of the border.  By making contributions to my DC pot to avoid that, I effectively can get £100 in pension, or £47 net pay.  If I went to HL, I’d get the basic tax relief, would have to claim back my HR tax relief via tax return and would not get the 12% NI saving.  So Sal sac makes USS a no brainier for me because of NI savings.

In what way are the SNP’s (Scottish Government) “tax arrangements” horrible?

53% marginal rate between 43k and 50k earnings.  It's a distortion in Scotland caused by the lower HR threshold.  It doesn't raise any extra tax in that zone (well 1%), it just forces an NI payment where none would otherwise be due.   ie Scottish HR taxpayers pay 53% in that zone whereas rUK taxpayers pay 32%.   It takes £900m out of the economy, for a £180m gain in net revenues.  ie, the same as if they'd left alone and picked up the revenues via VAT, but at least then it would have supported jobs/retail/business.   Worse for University employees in Scotland (the topic of this thread) is that the UK national pay spine means that a Scottish University person can be on £50k, like an rUK University person - same national pay spine - and net £1500 less.    I view that as pretty horrible, others may disagree of course.