USS pension - to continue making AVCs or to start a SIPP with Vanguard?
in Pensions, annuities & retirement planning
30 replies 1.2K views
I am employed and I am also self-employed. (yes, my partner is very understanding of my time commitments!)
Its coming up to my end of year. Ive maxed-out my ISA allowance (obviously). Ive also paid about £25k into my employers pension scheme (USS. These payments are not salary sacrificed and not matched) and £4k into the USS scheme which automatically come out of my monthly pay - so about £30k in total this year to my pension.
Ive had a particularly good year this year and have found myself in the fortunate position of holding a lot of cash. So much so that Ive started a GIA (ie: non-tax wrapper) with Vanguard to shuffle money into and keeping any income within the dwindling dividend tax allowance threshold.
I luckily dont have many outgoings, hence why Im sat on a lot of cash. So what's a girl to do? I dont have the stomach for VCTs or direct company share dealing. I just want to shuffle money into passive tracker funds as tax efficiently as I can.
Does that only leave me with pension contributions? If so, should I continue making additional contributions to my USS pension, or is there a benefit to starting a SIPP with Vanguard and investing in - say - LifeStrategy100?
I read somewhere that I can only pay in £40k per year into a pension. Is that right?
If the view is to stuff as much as I can into a pension, then I would do so but keep it as cash and pound-cost average over the forthcoming months. (Im not sure this is even do-able with USS!).
Many thanks for any guidance, recommendations or tips.
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Depending on your income and any unused allowance from the previous 3 years you could in theory pay £160k in one year.
In reality it will be a lot less due to your contributions in previous tax years.
If your standard USS pension is a DB scheme then it gets more complicated as it's not the contributions which count for that pension, it's the pension input amount (relating to the value of the pension, not the contributions).
So if you want to contribute* more than £40k you will need to look back at 2019:29, 2020:21 and 2021:22 to understand what will be possible.
*mix of actual contributions and PIA amount.
I recommend you log on to myUSS and look at your DB and DC benefits for this tax year and the proceedings 3 years. To see how much of your annual allowance you have used. For previous tax years you can logon and see your used AA ; it’s added in the autumn for the previous tax year.
In USS you choose what you invest in the DC part of the scheme, the choices are different to vanguard. It’s basically standard, ethical or emerging market and then you can vary the risk level (ie bond to equity ratio). I am pretty sure you can also choose a cash option (designed for those soon to retire).
A couple of things:
1) I definitely cant SalSac contributions. Ive checked this twice with the Pensions Dept. Ive heard its almost universally done via SalSac so - given the institution I work for - I was very surprised to find out its not! (hence why I checked twice with the Pensions Dept!!)
2) This is the first year Ive made AVCs, so Im sure I can carry over the past 3 years of unused amounts. Ive got £30k in cash form this year's income to play with
Thanks all. Youve been very helpful as always!
If you plan to take both the RB and IB benefits together you will be able to combine their values for the purposes of calculating your maximum tax free lump sum (TFLS). This may allow you to make significant tax savings at the point of withdrawal and therefore may make it more worthwhile to consider additional pension payments from your salary and/or transfer in from another pension fund (such as a SIPP).
For example, if you've got £20k RB and £200k IB the calculation would be as follows:
( (RB benefits * 20) + (RB lump sum benefit) + (IB total) ) * (25% TFLS)
( ( £20k * 20) + (£20k * 3) + (£200k) ) * (0.25) = £165k TFLS
Of that £165k, £60k would be made up of your standard RB TFLS and the other £105k would come from your IB funds, leaving £95k.
This remaining £95k is then considered an entirely separate pension pot, which you can either transfer or drawdown from. Furthermore, 25% of this pot can be drawn as a TFLS as normal.
Despite the recent USS pension changes being terrible for current and new members, those with a significant RB benefit accrual can still make significant tax savings by loading the IB, even without salary sacrifice.
Although your question has already been answered in various ways, just to make it crystal clear that the £40K includes all inputs into a pension ( employer contributions, tax relief etc ) , not just your contributions.