USS pension - trying to understand it!

Grampy_Rabbit

Sorry I'm not very financially literature but trying to improve! Any help would be very appreciated. 

I work at a University and have been paying in since 2015. I am 44 years old. I contribute the standard amount to the scheme of 9.8% salary plus 1% match (although employer no longer matches this). My statement says I currently have £5878 in the investment builder (DC part) and from the DB part of scheme I have annual income of 3K. Using the projection tool it suggests by 66 I will have annual income of 13K a year and investment builder will be £156K. However there have been recent changes to the scheme and no doubt will be again so I don’t know how reliable these figures are.

I’m struggling to understand how the investment builder part works in terms of what £156K would translate to per year? Is there a rule of thumb for how you can calculate this?

I guess I’m trying to work out whether what I am currently contributing is enough or whether I should start paying in additional contributions or perhaps even open another pension? 

Thank you very much for reading

Dazed_and_C0nfused

Don't forget you might only want the DC part to last a few years of it could be a bridge from early retirement till when you get the State Pension.

Linton

One option I believe you have with USS is to use the DC part to pay your DB tax free lump sum if you take both at the same time.  That could be a better option than using the whole of the £156K for pension income.

If you invested a lump sum at say 60 a very rough figure is that a 3.5%/year inflation linked income is probably sustainable, but you would need to have some experience of investing.  If you used the whole of the £156K that would equate to about £5.5K/year.  With an invested pot nothing is guaranteed, unlike your DB pension.  Note that all figures should be at current prices.

Another factor to consider is whether you want to retire before you get your State Pension and would therefore need to replace that income for a few years.  You could use the £156K for this purpose.  Paying extra contributions into a personal pension could be worthwhile to give yourself greater flexibility such as being able to avoid taking the DB pension early.

2nd_time_buyer

I had a play with the projection tool last week. It now seems to be taking into account the lower DB benefits going forward (1/85 and £40k cap vs 1/75 and £50k cap).

Regarding paying in more to the investment builder (IB): Are your pension contributions made via salary sacrifice? if so it almost certain better to pay into the IB than a SIPP as you will also get relief on the NI.

In addition, there are no management charges in the IB (although some funds have higher costs to buy/sell units).

Also the lump sum benefit that @Linton mentions above.

bluenose1

The £156k is a lump sum so would depend how you decide to spend it on how long it would last.  Though sounds a lot to have saved by 56 if you are only contributing 1% of your salary. I will be doing as Linton suggests and taking both my DB and DC pot at same time to minimise tax (took me months and several spreadsheet calcs to  to get my head around the benefit of that.)
For additional contributions to your IB, every £66.75 you give up of your salary a £100 is put in your pot.
I am putting in the max i can as hoping to leave in next years or so, though you must leave yourself with a a salary above NMW.

Dazed_and_C0nfused

For additional contributions to your IB, every £66.75 you give up of your salary a £100 is put in your pot.

No, for every £100 of your salary you give up £100 is put in your pot (as an employer pension contribution).

This often means your take home pay is only reduced by £66.75.

bluenose1

Dazed_and_C0nfused said:

For additional contributions to your IB, every £66.75 you give up of your salary a £100 is put in your pot.

No, for every £100 of your salary you give up £100 is put in your pot (as an employer pension contribution).

This often means your take home pay is only reduced by £66.75.

Thanks, I always get the terminology wrong, but that is what I was trying to say.

ussdave

One thing you may want to consider if you expect to have significantly over the maximum TFLS is to transfer out the IB funds to a separate SIPP at a point where you can still fill the IB up with more funds.

For example, if your max TFLS is £100k and you expect to have £150k, once you hit ~£50k transfer the money into a SIPP and then continue to pay into the IB as originally planned.

This will then mean that when you come to retire you could potentially draw the SIPP first and delay taking your USS pension, thereby reducing any early retirement factors.  

If you're not planning on retiring early then I'd discount this as an potential option.

2nd_time_buyer

Thanks ussdave, useful to know

Grampy_Rabbit

Sorry for slow reply, I haven't been very well. 
Thanks to everyone who tried to help me  

I have one other question. I noticed that there is a default option in where your pension is invested the 'do it for me' option. I'm not very knowledgeable about investing so would you say its ok to go with this or should I try and improve my knowledge and take a more informed approach? 

2nd_time_buyer

Grampy_Rabbit said:

Sorry for slow reply, I haven't been very well. 
Thanks to everyone who tried to help me  

I have one other question. I noticed that there is a default option in where your pension is invested the 'do it for me' option. I'm not very knowledgeable about investing so would you say its ok to go with this or should I try and improve my knowledge and take a more informed approach? 

The default option is a mix of equities, bonds, cash, direct investments and other odds and sods. As you approach retirement the percentage in equities and higher risk investments reduces to reduce risk. Last time I looked it was quite heavily invested in UK equities, for better or worse.

Based on my experience over the last 20 odd years in the scheme, I am not overly convinced of the ability of the USS to manage funds. And all my contributions are put in the world tracker fund.