USS Retirement Options

LL_USS

ussdave said:

Ooh.  Will have to try it out when I'm home.

I'm glad you've had your question answered.  I think I'd choose take all savings, assuming anything left over goes into a separate pot for UFPLS.

Another AHHHHHHHHHHHH moment, thanks a lot USSDAVE.

I understand a bit more now. My goodness, it does take explanations from you guys for us to understand our options.

I went ahead more with "your likely option" of taking the DC, then yes my annual pension still seems to remain at the original amount of 24,559 (and TFLS is only 3 times of this amount, not max as when I chose the middle option of taking all savings and benefits).  Now I can, for this option, have extra income from the whole IB pot for UFPLS (25% of this can be taken tax free).

I can see there is little point to take out a max TFLS and do nothing with it (for e.g. because one has paid off all mortgage(s) and debt(s) ) - you would need to invest that sum again somewhere. For my individual case I may still stick with the option for Max TFLS (taking all savings and benefits together) as this max lumpsum (6.667 times 24,559) can be used to pay off an investment I perhaps will have soon (interest only mortgage to buy) for my children.

I see I see I see :-). It feels great understanding something extra.

Thanks a zillion !!!!! :-) :-) :-:smile: 

ussdave

LL_USS said:

ussdave said:

Ooh.  Will have to try it out when I'm home.

I'm glad you've had your question answered.  I think I'd choose take all savings, assuming anything left over goes into a separate pot for UFPLS.

Another AHHHHHHHHHHHH moment, thanks a lot USSDAVE.

I understand a bit more now. My goodness, it does take explanations from you guys for us to understand our options.

I went ahead more with "your likely option" of taking the DC, then yes my annual pension still seems to remain at the original amount of 24,559 (and TFLS is only 3 times of this amount, not max as when I chose the middle option of taking all savings and benefits).  Now I can, for this option, have extra income from the whole IB pot for UFPLS (25% of this can be taken tax free).

I can see there is little point to take out a max TFLS and do nothing with it (for e.g. because one has paid off all mortgage(s) and debt(s) ) - you would need to invest that sum again somewhere. For my individual case I may still stick with the option for Max TFLS (taking all savings and benefits together) as this max lumpsum (6.667 times 24,559) can be used to pay off an investment I perhaps will have soon (interest only mortgage to buy) for my children.

I see I see I see :-). It feels great understanding something extra.

Thanks a zillion !!!!! :-) :-) :-:smile: 

One thing I'm not sure of from your post.

Ideally you *do* want to take as much tax free cash as possible at the same time as your USS RB pension commencement.  However, any of the IB funds left over after this *should not* be commuted for additional RB pension.  Instead, these funds will go into a separate pot that you can then draw via UFPLS (which means 25% of that money remaining is also tax free).

This maximises your total tax free cash.  Any that you don't have an immediate use for you can put into an ISA or whatever savings vehicle you feel most appropriate for you.

edit2: I'd messed up the options in my example.  I'll come back later with an updated version.  

LL_USS

@ussdave thank you.

I think I am on the same page too with the (1) taking DB and IB pot together to max the lumpsum at the point of retirement and (2) any leftover from IB pot can be drawn via UFPLS. ANd yes thank you, you're right, if I take out a big TFLS and pay off some stuff, any leftover can be put in an ISA (within the yearly allowance).

However, one thing I am not sure (either) is that I don't know how to let the tool help me calculate the outcomes of taking DB and IB together but leaving DB as it is, no commuting a part of IB over. I have been playing with the updated tool and when I leave the IB pot as 6% vol contribution, it still goes all to commutation to annual pension. But if I increase more, say, to 11% contribution, the annual pension is still increased (24.5K to 28.3K) meaning a part of IB pot is commuted to that but leaving 39K in the IB pot. I suppose this 28.3K times 6,667 = 188.7 is the max TFLS I can get based on my RIB, even when I put loads more in the IB pot. I have checked with the tool, and yes this is the case.

Perhaps the tool only gives us these 3 simplified options but we can still request, for e.g. keep DB at 24.5, don't commute anything from IB pot, and take DB and IB together.

EDIT: I did it, yay!!!!! (EDIT: Oh my I've just realised Nick taught me exactly these steps and someone else explained those too,  but I was not at that level yet when I first got the lesson, so it didn't stick to my mind - only when i understand more now)
I can see there is an option after taking all savings and benefits then next you can have an option to "Take less DC savings". So put in the amount (projected pot size minus DB times 3.667) as what I want to be left in the IB pot, and yes the annual pension comes to the original RIB of 24.5K. This means I only take out the portion of IB for TFLS and do not commute any of it to the annual pension. I can draw the leftover via UFPLS. Hurray :-). I think I have roughly enough information of pension projection for financial planning now :-)

ussdave

Good stuff.  I had the same problem earlier when I was trying to get some screenshots as examples.  The last group of settings is not presented very well.  They need to hire some better UX folk.

LL_USS

@ussdave indeed :-) :-)

One more thing, i've heard here that the commutation rate is not great. I then check it out with the tool. In my example of putting in 6% vol contribution, in which all the IB pot would be commuted to annual pension, I got 27,040/year pension plus 180,267 TFLS.

But If I do not commute anything from IB, meaning still getting 24,560/year plus 163,736 TFLS (screenshot in the last post), with the leftover 65,230 in the IB, if I buy annuity (calculation within the tool), I can get 3,146/year annuity plus 16,308 TFLS (we can choose to take no TFLS to max annuity but I choose this for an easier comparision). This means I can get a total annual income for life of 24,560+3,146=27,706 plus a total LS of 163,736+16,308=180,044. 

So it seems commutation offered by USS is not as good as buying annuity (we can shop around for better annuity too) and if one doesn't need (the certainty of) higher income for life then there are better investments/ usages. Conclusion for myself: don't take the automatic options, for anything we can have a choice over, just shop around.

LL_USS

@FIREmenow or others who know about SIPP, please when you have a chance could you give some simple explanation about why many USS members with a decent DC pot are so keen on transferring a part/ or all of their DC pot to SIPP for drawing down? I have heard something like because USS does not allow flexible drawing down from DC. I am thinking of only putting in enough contribution to DC to be mostly taken out in the tax free lumpsum at retirement. But if the DC pot is quite substantial then what's the drawing down option if it stays in USS and what's changed when it's transferred to SIPP? Many thanks.

NickBFS

If you have money in a pension pot, there normally are 3 ways to retrieve that money:
1) buy an annuity
2) take your money as Uncrystallised Funds Pension Lump Sums ('UFPLS')
3) flexi drawdown

2) and 3) are different ways of taking money out of the pot.
With UFPLS, you take a sum of money, 25% of which is tax-free and 75% of which is taxable as income tax (therefore taxed at your marginal income tax rate).
With flexi drawdown, you have the option of taking the 25% tax-free bit while leaving the rest invested, and available to drawndown at a later date (albeit this time with no tax free element since you would already have taken the tax-free  bit out)

One of the advantages of 3). other than giving you greater flexibility, is that, as long as you have only taken the tax-free element, the MPAA is not triggered. For individuals who intend to continue working after taking their pension and further contributing to their pension, this can be attractive, as you are not limited to contributing GBP 10,000 per annum, as you would be if the MPAA kicked in.

USS does not allow 3). You would therefore need to transfer to a SIPP in order to be able to do that.

For the majority of USS members, however, who do not intend to continue working post-retirement and whose income is stable from year to year and do not need fine-tuning for tax purposes, there is no overwhelming reason to go for flexi drawdown over UFPLS and having a SIPP has the disadvantage that you there will be fees (although these can be very low if you have a simple self-select SIPP) , whereas these are waived in USS. 

LL_USS

@NickBFS - thank you very much for helping, again, with another question. I am going to digest this tonight after dinner and I hope I will understand the issue a lot better. Best wishes.

LL_USS

NickBFS said:

If you have money in a pension pot, there normally are 3 ways to retrieve that money:
1) buy an annuity
2) take your money as Uncrystallised Funds Pension Lump Sums ('UFPLS')
3) flexi drawdown

2) and 3) are different ways of taking money out of the pot.
With UFPLS, you take a sum of money, 25% of which is tax-free and 75% of which is taxable as income tax (therefore taxed at your marginal income tax rate).
With flexi drawdown, you have the option of taking the 25% tax-free bit while leaving the rest invested, and available to drawndown at a later date (albeit this time with no tax free element since you would already have taken the tax-free  bit out)

One of the advantages of 3). other than giving you greater flexibility, is that, as long as you have only taken the tax-free element, the MPAA is not triggered. For individuals who intend to continue working after taking their pension and further contributing to their pension, this can be attractive, as you are not limited to contributing GBP 10,000 per annum, as you would be if the MPAA kicked in.

USS does not allow 3). You would therefore need to transfer to a SIPP in order to be able to do that.

For the majority of USS members, however, who do not intend to continue working post-retirement and whose income is stable from year to year and do not need fine-tuning for tax purposes, there is no overwhelming reason to go for flexi drawdown over UFPLS and having a SIPP has the disadvantage that you there will be fees (although these can be very low if you have a simple self-select SIPP) , whereas these are waived in USS. 

Dear @NickBFS

I have had time to digest this note of yours, and again, thank you very much for your explanation (you've always been so helpful with these USS questions).

What you explained piece together what I heard here and there and yes lots of those make sense now. I forgot about the implication of MPAA when drawing down from the investment pot whilst one still wants to work and contribute further. The new MPAA of 10K is already better than the 4.5K level before, but still quite small for people with high salary still working a lot after taking from the DC pot. SIPP is worth considering if people plan early partial retirement, taking from the pot but still trying to put back. I understand now when they say they leave a bit in DC and try to build it back whilst transferring the rest out to SIPP to draw down from SIPP without triggering MPAA in their USS, to allow contributing back to the pot with USS. EDIT: if they transfer to SIPP it doesn't trigger MPAA right?, as technically they have not drawn down the pot, only transferring (a big part of) it out. Sorry I am still slow at this.

I think I will be among the "majority of USS members" as in your helpful conclusion - perhaps working till 65, retiring from USS, taking the DC mostly in the TFLS without crystalising the remaining DC pot (if there's any remaining). Ah, for this remaining DC pot, because I do not transfer to SIPP (I suppose it won't be much), do I draw down gradually every year at my marginal tax to be more tax efficient rather than taking all out together and pay maximum tax on the load right away?

NickBFS

LL_USS said:
do I draw down gradually every year at my marginal tax to be more tax efficient rather than taking all out together and pay maximum tax on the load right away?

Absolutely. Taking the whole pot in one go would, unless the pot is very small, in all likelihood push you in a higher tax bracket and land you with a substantial tax bill. Unless there is an urgent need, taking the pot gradually and avoiding reaching a higher tax bracket would be sensible.