Retiring early - am I better off delaying my USS pension and general advice?

RSTime

I am intending to retire this year (aged 59). I have a USS pension which I plan to start taking at some stage (actuarially reduced). I have significant savings including a number of low interest accounts that are maturing this year (ISAs and premium bonds maxed out, the ones I plan to access are earning no more than 1%). I can live off these maturing accounts for at least a year, if not longer (>£30k). Am I better off delaying the start of my USS pension for as long as possible (it increases in value by about £1,000/annum and lump sum by about 6k/annum if I delay)? I am mindful that whilst my savings are earning very little interest my pension is linked to inflation thus seems to make sense to use spare cash whilst inflation is high.

I have a (smaller) TPS pension as well and I am at 99% of my lifetime allowance. My strategy is to take my USS first (more substantial and the pension I can live off) and then keep an eye on my TPS pension and ensure that I take it at the appropriate time (actuarily reduced) so that I will keep under the lifetime allowance (if I wait until I am 67 to take it I will likely exceed my allowance). Assume this is a sensible approach?

I am risk averse and my savings have been in cash (ISAs, National Savings index-linked certificates (which I will keep!), Premium Bonds and fixed-rate bonds). Once I retire my intention is to start to move some my ISAs, bonds and USS lump sum into relatively low risk funds. I am a novice and was looking at Vanguard’s LifeStrategy range. Are these as good as any? Would low-risk investments via a financial adviser perform and better or would I just be incurring more fees?

For information, no mortgage or other debts to consider.

Thanks in advance.

2nd_time_buyer

I am assuming that you have been in the USS for some time. For service pre 2011 you can take that portion pension at 63.5 years with no reduction. I am not sure what happens if you delay from 63.5 to 65 (the normal retirement age at that time) - whether the pension is increased. 

If you want to take the tax free lump sum from the combined value of your DB benefits and saving in the investment builder, then I believe this needs to be done at the same time, which may influence your timing.   

Generally, the early retirement factors are quite generous with the break even point around the mid to late 80's years old. So think the consensus is that it is not a terrible thing to take it early. 

Albermarle

I am risk averse and my savings have been in cash (ISAs, National Savings index-linked certificates (which I will keep!), Premium Bonds and fixed-rate bonds). Once I retire my intention is to start to move some my ISAs, bonds and USS lump sum into relatively low risk funds. I am a novice and was looking at Vanguard’s LifeStrategy range. Are these as good as any? 

The issue is that with investing , low risk funds are not no risk.

If you take the Life Strategy range ( known as a multi asset fund) as an example . The VLS 40 is 40% equity ( shares) and 60% bonds ( loans to Governments and companies ) The usual idea is that equities will give the growth over a long period, but they will be volatile. The bonds will grow more slowly and are less volatile.

So the theory is that the higher % bonds, the lower risk/volatile the fund . This has generally worked for many years but the outlook for bonds is rather weak and therefore a high % of bonds is not generally recommended anymore ( although there are different opinions) It sort of means perversely that funds traditionally labelled low risk maybe be higher risk than higher risk funds .

On the other hand if you stick with cash savings, inflation is eating away at the value.

No easy answers.........

Would low-risk investments via a financial adviser perform and better or would I just be incurring more fees?

This issue is debated ad infinitum on this forum . Let's just say there is a range of opinions .....

RSTime

Yes, I have equivalent of 30 years in the USS

ussdave

Out of interest, do you have much money in your Investment Builder portion of your USS pension?

If not, I'd suggest that you max out your additional contributions between now and retirement, using your savings to cushion the loss in take home pay if required.  The tax breaks on doing this are significant and you will be able to draw much of the money tax free when you finally do commence your USS pension.

I think people would be able to give you better advice if you provided additional information (e.g. salary, expected USS income at various ages, any additional pensions (e.g. SIPPs) and the level of income you want when you retire).  That said, the key things are to ensure that you are making use of your tax free allowance each year and  that if you do draw the pension early that your income will be enough for your needs.  As Albermarle said above, USS actually offers quite reasonable early retirement factors so the choice is much more a personal one than it might have been with another pension provider.

edit: I somehow missed some of the info in your original post.  Given you have concerns about LTA it's likely that your suggestion of drawing the USS early first, followed by the TPS at a later date, is a good one.

SMcGill

If you are a deferred member USS do not give any actuarial increase for pensions taken later than normal scheme retirement age so there’s no gain in deferring beyond 63.5.

You don’t say what institutions you worked for so have you checked that your USS contracted retirement age is the same as normal scheme age? I worked at the OU and my pre-2011 pension is payable from age 60.

jamesd

It seems that taking part of the USS at 63.5 is going to be a good initial move.

Beyond that it's worth comparing the effects of taking the rest of USS and TPS at different ages with a view to taking one of them soon and the other later, depending on which gives most reward for waiting.

It'll be possible to defer everything except the USS 63.5 portion by using borrowing. Sometimes a retirement interest only mortgage may be suitable because that starts out interest only and you can then start to repay it once both work pensions and the state pension are in full payment. This has a cost but lower actuarial reduction can cover that and there's the advantage of being able to start at your full unreduced all USS plus TPS plus all state pension income level immediately. Lifetime allowance can then decide when to take the TPS and rest of USS.

NedS

RSTime said:

I have a (smaller) TPS pension as well and I am at 99% of my lifetime allowance. My strategy is to take my USS first (more substantial and the pension I can live off) and then keep an eye on my TPS pension and ensure that I take it at the appropriate time (actuarily reduced) so that I will keep under the lifetime allowance (if I wait until I am 67 to take it I will likely exceed my allowance). Assume this is a sensible approach?

Yes, makes perfect sense. No point exceeding your LTA if you don't need to and as you say, you can manage it by choosing when to take your DB pension(s) with actuarial reduction.

Otherwise I would look to max out your additional contributions between now and retirement as @ussdave suggests, using your savings to supplement your income as required, whilst closely monitoring your LTA. No point maxing out contributions only to be hit with a 55% tax charge for exceeding the LTA