USS Retirement Options

ussdave

Those two options are now quite close in terms of benefit over the course of the rest of your life.  I've not done the calculations though and I expect that one is still technically more benefit than the other.

I guess it's a toss-up between having the extra ongoing income (option 3) or having the potential of a larger spending pot earlier in retirement (option 1).  If you have sufficient other sources of secure income I think option 1 would edge it out for me personally.  Alternatively, if you don't, then option 2 does give you more security.

Personally I wouldn't bother with a middle ground (option 4) unless you have some really specific requirement/goal in mind.

atw_uss

I guess it's a toss-up between having the extra ongoing income (option 3) or having the potential of a larger spending pot earlier in retirement (option 1).  If you have sufficient other sources of secure income I think option 1 would edge it out for me personally.  Alternatively, if you don't, then option 2 does give you more security.

Thanks @ussdave - I've just deleted my previous comment as it's still up in the air a bit having looked more into reverse/inverse commutation rates (I've commented on this in another post). I don't think any of the options are poor, so it's just a question of deciding on what would suit best, especially now that USS have confirmed that the DC remaining in Option 2 could in fact be taken tax free.

1. Standard pension option = £10K + TFLS of £30K + £100K remaining in DC pot
2. Max pension option = £14K + £0 TFLS + £40K TFLS (remaining in DC pot but told I can take it TF)
3. Max TFLS option = £12K + £80K TFLS + £0 remaining in DC pot
4. Take an option between 2 and 3.

The 'interesting' thing seems to be that the standard lump sum has a reverse commutation factor of 35.4 pre 2022 (31.85 post), but the MPAVCs are better at 27.42 (taken soon at 56). Hmm ...

PS My latest retirement quote is from 3rd April so hopefully in line with the new rules, etc.

ussdave

My view hasn't really changed with these new figures if I'm honest.  I think you have the same considerations as before (e.g. what other regular income do you have and do you have a use for the large TFLS).  

That said, my order of preference personally would be:

3
2
1


That is based on assuming that:

a. You have other income (as I recall you do from previous posts).
b. You might want to treat yourself a little as you start retirement.
c. Option 1 'robs' you of the ability to link your TFLS to your DB benefits, meaning you'll pay more tax.

I'm still a bit confused as to why there isn't an option similar to 3 where you still only get £10k/year, a large TFLS and some money remaining in your DC pot (of which some could also be taken tax free).

atw_uss

Thanks, @ussdave - I'm edging closer to making a final decision now. It's a shame that USS only intially provide a table with two options (max pension and max TFLS) in their quotes, but I've since found out it's possible to request other permutations, in addition to using the modelling tool on their site.

My 'complication' is that approx 2/3 of my DC pot is made up of MPAVCs (built up in my teacher days) which I can still use to buy more pension, and they have a much better reverse commutation rate than the IB. With this in mind, I've now requested a further quote modelling if I were to use my MPAVCs alone to boost pension, as this would likely still leave a sizable TFLS.

Other remaining dilemmas relate to:

• potentially contributing a lot more of my salary to pension over the remaining months, as this looks very advantageous (55% seems to be a sweet spot), and I should still remain within the max TFLS limits;
• moving my DC pots into very low risk funds, thereby avoiding any big stock market falls over the next 4-5 months, but equally any gains. I have my 'retirement age' set accordingly on the USS website, but I'm surprised a lot still seems to be in medium risk funds at this stage. A liquidity fund looks like the super safe options.

As always, all thoughts very much welcomed!

ussdave

Yes, the MPAVC thing does complicate things a little (especially for me as that's an aspect of USS I've had very little to do with - though I do regret my decision not to start them up before they were closed off as an option).

Regarding contributing more salary: I'd fill your boots.  Everything you put in, even if it doesn't fall within the TFLS limits, will be uplifted significantly by the salary sacrifice aspects.  

Moving to low risk funds: I'm not sure how it works re TFLS.  I presume USS has to sell your IB funds to fulfil the TFLS it owes but what happens to the remaining pots?  Do they stay invested or are they sold at the point of retirement (and presumably you could reinvest into the various USS investment options at that point)?

Given your proximity to retirement I'd advocate low risk funds (or even cash) to cover anything you plan to take as TFLS.  For anything that you expect to be invested for some time longer, choose a level of risk that you are happy with.  

Personally I'd be sacrificing as much of my salary as I can get away with and keeping it as cash (or extremely low risk) in the IB.  That can then make up a large portion of the TFLS you draw, leaving some of your investments to remain invested.  Depending on just how soon you are retiring I'd consider using existing savings or even a 0% credit card to cover any income shortfall so you can really hammer the salary sacrifice in the final months. 

atw_uss

Thanks, @ussdave - it's really good to hear your thoughts on this. I was a teacher for a good few years before coming into HE, and the AVCs have been an unexpected bonus (that I'd forgotten about for years but which had performed well). I'm pleasantly surprised that the reverse commutation rate they offer seems decent.

The USS liquidity fund looks like the optimal one in terms of protecting current DC levels, and as you say, if anything remains invested, then I can change funds or move to another provider on retirement.

bluenose1

I think the liquidity fund is paying just over 4% interest at the moment, looking at how much mine  increased last month.  I have all mine in there as intend to use it to live on until civil service pension starts at 60. I know inflation is far higher but every little helps. 

MPLMPL

The USS liquidity fund tracks the Bank of England's SONIA interest rate, so like having it in a savings account that almost pays the BoE base rate (I know, they're not the same thing). There are no fund or platform fees in the investment builder, so as @bluenose1 states, it's effectively earning 4.1% "interest" at the moment.

atw_uss

Thanks, @bluenose1 and @MPLMPL - this sounds perfect for what I need. I don't want to risk some slump in the markets impacting on my TFLS, whatever size that may end up being!

LL_USS

Hi everyone, I am a newbie here, just signing up at the weekend. It is still a while till I retire and take benefits from USS; I am just doing financial planning as I want to help the kids climb the property ladder, if possible. My salary is not great, yet I have tried to save more into pension with volunteer contributions. What I would like to ask is, whether I can take the Investment Builder lumpsum out at minimum retirement age (57) whilst still working, without triggering MPAA (which means lowering my ability to continue adding suffciently to my pension pot). I have had different information online, some says "tax free lumpsum will not trigger MPAA" only when you crystalise your IB pot then it does. Anyone can shed more lights on this please help? Many thanks. I am thinking it would be nice to get a lumpsum out to help the kids then still keep on working and saving into my pension.