USS retirement - options

Tarama

Hello 

I am in a fortunate position - I am retiring from my university post in a few months and taking my USS pension.  I am retiring at 62 years but my contract means that my pension is not subject to actuarial reduction. 

I have some decisions to make about how to take my pension and many on this forum may have views I have not considered.

So my situation is -

1.  I can take annual RIB pension of £30,000 with a lump sum of 200K. 

This leaves about £43K in the Investment Builder - to access later.  I am not very clear about my options here but obviously it can be left in the IB and when I withdraw it -  will involve a tax free sum of 25% and then taxed at marginal rates.   My situation is that I am hoping to continue with some university work - to rejoin USS and perhaps to work PT for a further 3 years.   So I may increase my income by £10K to £20K PA, so the tax implication has to be considered.  My second issue here is that if I access any of this £43K I trigger MPAA - which I do not want to do, because I hope to rejoin USS.   I have a full state pension at 66 years.   


2.  My next option is to take £31,000 annual RIB pension with a lump sum of 206K.  This has converted the £43K to annual pension of £970 (commutation factor is 37!!)


3.  Another option is to commute some but not all of the £43K into pension.  Again the commutation factor is poor.       

     

From USS DC benefit options  - "Other USS options for the £43K are -  the option to transfer all of your defined contribution (DC) funds elsewhere and buy an annuity or take flexi-access drawdown. (subject to IFA advice)   It should be noted that accessing your DC benefits in such a way could trigger the Money Purchase Annual Allowance."    USS did have a list of drawdown providers, however this appears to no longer be available. Also I do not fully understand what this involves.

 I have an appointment next week, with Mercer provided by USS, to discuss my situation.

Any thoughts about this would be great - thank you.

Tarama

SMcGill

Bear in mind that USS do not give any actuarial increase if you defer taking your pension, so if for example you defer for 3 years then you’ve just given up £90k (gross) in income.

bluenose1

With those commutation rates I wouldn’t be doing option 2 or 3, I would go for option 1 and get maximum out tax free.  

As soon as you start drawing down what is left in the IB after the tax free amount through USS it will be classed as triggering MPAA, so I wouldn’t use that until you know you won’t work again. 

You could transfer it to a HL SIPP etc get the 25% out tax free but with the lump sum you have why bother. 

A nice problem to have.

Tarama

SMcGill said:

Bear in mind that USS do not give any actuarial increase if you defer taking your pension, so if for example you defer for 3 years then you’ve just given up £90k (gross) in income.

Thank you SMcGill - good point but I do not plan to defer taking my pension. 

Tarama

bluenose1 said:

With those commutation rates I wouldn’t be doing option 2 or 3, I would go for option 1 and get maximum out tax free.  

As soon as you start drawing down what is left in the IB after the tax free amount through USS it will be classed as triggering MPAA, so I wouldn’t use that until you know you won’t work again. 

You could transfer it to a HL SIPP etc get the 25% out tax free but with the lump sum you have why bother. 

A nice problem to have.

Hello Bluenose 

yes it is a nice problem to have - and I agree the commutation rates are rather poor!   They only changed a short time ago.

My feeling is to go for option 1 and then leave the £43K invested in the USS IB.  I will look at what costs this involves - at present there are no fund charges.  Thanks.

Tarama

ussdave

Option 1, but perhaps consider transferring the £43k to a SIPP (probably not the best plan financially due to the charging structure of USS for funds, but it would feel "cleaner" to me if I were planning a potential return to being an active member).

As you say, of that £43k you can access 25% tax free.  Accessing this amount would not trigger MPAA I'd assume as it's tax free.  Once you draw any of the taxable funds you will trigger it.

However, as the USS is a DB scheme I'm not sure the MPAA will matter (though how that works with the fact it's a hybrid scheme.... I've no idea).

Finally, do you know what the rules are for accruing further USS pension once you are in effect a retiree?  Perhaps I'm over-thinking this but it sounds potentially complicated.

Tarama

ussdave said:

Option 1, but perhaps consider transferring the £43k to a SIPP (probably not the best plan financially due to the charging structure of USS for funds, but it would feel "cleaner" to me if I were planning a potential return to being an active member).

As you say, of that £43k you can access 25% tax free.  Accessing this amount would not trigger MPAA I'd assume as it's tax free.  Once you draw any of the taxable funds you will trigger it.

However, as the USS is a DB scheme I'm not sure the MPAA will matter (though how that works with the fact it's a hybrid scheme.... I've no idea).

Finally, do you know what the rules are for accruing further USS pension once you are in effect a retiree?  Perhaps I'm over-thinking this but it sounds potentially complicated.

Hi USSdave

we have had a similar conversation before - about this.  I do think taking anything out of the £43K (if I leave it in the IB) after I take my pension, does trigger the MPAA.  But maybe someone with more knowledge can come back about this.

I don't know the rules about accruing further USS pension once I am retired, but a colleague has done just this and there does not seem to be any issue around it.   I have a meeting with the USS affilated Mercer financial group (apparently using them is a USS pilot project), next week.  So this is one of the questions I will put to them.

thanks Tarama  

PJM_62

Hi Tarama
just wondering how your meeting with Mercer went ?

Did they clarify the what the IB options are , and if MPAA triggered ?

Tarama

PJM_62 said:

Hi Tarama
just wondering how your meeting with Mercer went ?

Did they clarify the what the IB options are , and if MPAA triggered ?

Hello PJM

I am afraid I did not find this meeting useful at all.  They had a script and any of my questions were not part of that script.  I understand the pensions industry is heavily regulated ahowever.

  

Secret2ndAccount

You could transfer the 43k to (for example) Hargreaves Lansdown, and take up to 3 x 10k chunks using the small pots rule. Could get 30k out without triggering MPAA. Might be worth doing that if you want the money now. Could take yourself to just shy of higher rate tax for a couple of years.
Not clear how easy or costly it will be to transfer out. If it's a full IFA assessment, it could cost you 5k in which case you are pretty much stuck with leaving it where it is.

ussdave

Tarama said:

ussdave said:

Option 1, but perhaps consider transferring the £43k to a SIPP (probably not the best plan financially due to the charging structure of USS for funds, but it would feel "cleaner" to me if I were planning a potential return to being an active member).

As you say, of that £43k you can access 25% tax free.  Accessing this amount would not trigger MPAA I'd assume as it's tax free.  Once you draw any of the taxable funds you will trigger it.

However, as the USS is a DB scheme I'm not sure the MPAA will matter (though how that works with the fact it's a hybrid scheme.... I've no idea).

Finally, do you know what the rules are for accruing further USS pension once you are in effect a retiree?  Perhaps I'm over-thinking this but it sounds potentially complicated.

Hi USSdave

we have had a similar conversation before - about this.  I do think taking anything out of the £43K (if I leave it in the IB) after I take my pension, does trigger the MPAA.  But maybe someone with more knowledge can come back about this.

I don't know the rules about accruing further USS pension once I am retired, but a colleague has done just this and there does not seem to be any issue around it.   I have a meeting with the USS affilated Mercer financial group (apparently using them is a USS pilot project), next week.  So this is one of the questions I will put to them.

thanks Tarama  

I missed this at the time sorry.

You could do as S2A suggests above (it won't require an IFA if you do it post-drawing your USS pension as it will simply be a standalone DC pension pot).

I don't believe you'll need an IFA involved to transfer out this remaining £43k into another pension and doing this would allow you to either:
1) Leave it alone until you definitely won't be working again.
2) Draw the TFLS and leave the rest until you're not working again.
3) Draw 3 * £10k of it via small pots.

None of the above would trigger MPAA whilst you're working.  You could also go for option 2 after option 3 and draw the TFLS on the money left over after 3 * small pot withdrawals, again without triggering MPAA and leaving just a small amount of taxable funds in the account to be drawn at a later date.

Apologies if this is repeating things we've discussed before.  It's early

edit:

In regards to what is involved in transferring funds out of the IB, I believe it is a fairly simple matter of setting up a SIPP elsewhere and then filling in the transfer forms with that SIPP provider.  I've not done it myself but I believe that's the gist of it.  

In your case, you would 'retire' and take your RB benefits along with the maximum TFLS allowable by your IB, leaving the ~£43k.  At that point you would ask your alternative SIPP provider to initiate a funds transfer from the USS IB.  At the point of processing this would transfer everything in the IB (so if you've accrued additional money in there in the meantime, that'll go across too, though additional RB will not be affected).

The end result of this is that you'd have your USS TFLS in your band account and your RB benefits being paid.  You'd also have a separate SIPP of uncrystallised funds to the tune of ~£43k, which you could then take any of the options above to draw upon.

To check this process I think the question to raise with USS would be along the lines of:

"I plan to retire and take the maximum TFLS allowed (without any commutation).  This is expected to leave approximately £43k in my IB.  I then plan to initiate a transfer of these funds to an alternative SIPP provider.  Please can you confirm:

a) I will be able to initiate this transfer once I have retired and my USS benefits are in payment.

b) If there are any charges from USS to do this.

c) If this process can be initiated as a standard pension transfer (i.e. via my SIPP provider) or if it legally requires additional advice, such as an IFA."