USS vs TPS University Pension advice needed

Educateeer

OK, thanks @ussdave & @FIREmenow.

deltrotter

@ussdave any chance you could explain this bit please?

"and then get most of it out tax free (due to the DC and DB linkage) is a nice perk."

TIA

Del

ussdave

deltrotter said:

@ussdave any chance you could explain this bit please?

"and then get most of it out tax free (due to the DC and DB linkage) is a nice perk."

TIA

Del

There's some discussion in this thread which answers that question  https://forums.moneysavingexpert.com/discussion/6430014/uss-pension-to-continue-making-avcs-or-to-start-a-sipp-with-vanguard/p2

Note that at one point there was some confusion over whether or not my statement was correct on some of the secondary tax free elements (for UFPLS withdrawals) but later in the thread I confirmed this with USS.

deltrotter

Thanks USSDave

Simes122

Just to say, @ussdave I'm not sure about the secondary tax free elements as just going through the process myself.

I'll use the figures for my own quotation to illustrate:

Retirement Income Builder (including final CRB benefits) Annual pension of: £5,055.60
A tax-free lump sum of: £15,166.80

Investment Builder Savings as at 31/07/2023: £203,855.99

They quote for 2 options:

1) Max Pension.   £5531.40 PA Lump Sum 0.   DC Fund remaning £203,855.99

2) Max TF Lump Sum.  £5531.40 PA Lump Sum £36,876.  DC Fund Remaining £166,979.99

In both options, they maximise the RB part by commuting the lump sum and converting that to annual pension.  
In option 2, the DC fund remaining is uncrystallised.  Thus a further 25% TF can be had from the £166,979 remaining, giving a total TF lump sum of 36,876 + (0.25 x 166,979.99) = 78620.99

This jives (ish, kinda) with this formula you've posted previously:

( (RB benefits * 20) + (RB lump sum benefit) + (IB total) )  * (25% TFLS)

((5531.40 x 20) + (15,166.80) + £203,855.99) x 0.25) = 82412.70

I think importantly, that's it done then in terms of TF allowance.  Because the further 25% TF has to be taken from the remaining DC pot to bring the total close to the formula you've previously posted - ie it has to be crystallised to boost it to the amount in your formula.   I was wondering why the figures were adrift though and thought it's perhaps due to commutation to the RB part and/or the post 1Apr22 changes.

So I did the same thing, this time plugging into the Benefits conversion tool, and fiddling the RIB bit to match the £5055 base figure.

By using the more options, and forcing it to preserve £185350 in my IB pot it gives me the following:

Annual pension £5055 (ie no commutation shenanigans).   

TF £33,697

DC fund Remaining (uncrystallised): £185530

Putting those back into your formula:

((5055 x 20) + (5055 x 3) + (203,855,99)) x 0.25 = £80030.25 theoretical max Tax Free.

Thus to get to that max TF, I now need to crystallise the remaining DC fund of £185530 to get a further £46.382 out, add that to the 33,697 giving me a total of £80079.5 TF.   It's not exactly the same as predicted by the formula, but it shows that the only way of reaching the formula tax free amount, is by also crystallising the remaining DC pot.  ie, you don't get to double dip by getting the predicted formula outcome and then get to dip into the remaining pot again.   At least that's what I'm seeing?   I might be missing something though, but I was labouring under the perhaps wrong assumption that I'd get the formula predicted amount, and then would be able to get a further 25% out of the pot.  Any thoughts?

ussdave

@Simes122

I'll start by saying that I could be wrong - I've just pieced together information from this forum and my own attempts to interpret the USS documentation.

Also, to me it "feels wrong" that you would be able to double-dip the tax free element, which is why I got in touch with USS to confirm it.  They did come back saying that it is correct, but it wouldn't be the first time that there was a misunderstanding or incorrect information given when asking a financial provider about the rules.

That all said, the quotes that USS have given you sound like they've ignored the option of taking your IB and RB together for the purposes of maximum TFLS, and that they've assumed you will always want to commute some of your pension.  @atw_uss had a similar experience in her thread, with USS providing some odd options, requiring a bit of back and forth to reach the expected result.

First thing I'd do is go back to USS and state that you want a quote for a situation where you will:

1. Draw RB and IB together
2. NOT commute any lump sum or regular pension
3. Take the maximum amount of tax free cash across both RB and IB (without commutation, as above), with the remainder retained in the IB, to allow for drawdown.

I'd also ask USS to confirm if the remaining amount in the IB will be crystallised or not, and therefore will you be able to drawdown via UFPLS (thus each withdrawal including a 25% tax free element).

I'm pretty (very) certain they should offer you an option that gives you a total TFLS of ~£80,033, with your RB paying ~£5,055.

What I'm less certain about is whether or not the money (~£138,989) left in your IB fund will be crystallised by this action.  As above, it feels wrong that it wouldn't be, but that is what the USS documentation appears to state and it's what USS told me when I contacted them to confirm this recently.  

atw_uss

That all said, the quotes that USS have given you sound like they've ignored the option of taking your IB and RB together for the purposes of maximum TFLS, and that they've assumed you will always want to commute some of your pension.  @atw_uss had a similar experience in her thread, with USS providing some odd options, requiring a bit of back and forth to reach the expected result.

@ussdave has provided some really useful information here. I think the default position with USS is to provide an illustration/quote for the standard pension, then the max pension and max TFLS options, when in fact there are other possible permutations. In my case, I have MPAVCs that can be used to boost the pension and the reverse commmutation rate is currently quite a lot better than that for the RIB TFLS one. It wasn't possible to calculate this properly in the Benefit Modeller so I had to request a couple of further quotes, but USS were very efficient and helpful when to-ing and fro-ing with questions. Reassuringly, my back of an envelope calculations were in line with the USS quote

If the Benefit Modeller doesn't seem to work, or you need to know more, go back to USS and ask them to confirm specific details. My understanding (which could very well be incorrect) was that if you take the max TFLS and this dips into your DC pot, you wouldn't be crystallising the remainder, but I'm able to take the lot, so it hasn't really been a consideration for me.

MPLMPL

I think in the USS documentation or in the repsonse to your ( @ussdave ) question the statement: if you take the maximum TFLS the remaining Investment Builder remains uncrystallised is correct.
The misunderstanding/loss in translation is how the maximum TLFS is calculated/defined. I don't think it is calculated using the entire Investment Builder. 

MPLMPL

Using the modeller confirms this.
As an example I entered an Income Builder pension of £20,000 pa and an Investment Builder ammount of £100,000.
Run it through the modeller asking for maximum TFLS you get at pension of £20,634 a TLFS of £137,559 and DC fund remaining £0. This would be based on using the entire DC fund in the calculation and the remaining crystallised DC being used to buy the additional £646 pa pension.
If you use these same numbers but choose the option to keep some of the Investment Builder invested and enter that you want to keep £26,666 invested, you get a pension of £20,000 and a TFLS of £133,333. The £26,666 left in the IB being uncrystallised.

This is equivalent to the calculation I posted in another thread to work of maximum TLFS, i.e. 

For every £1000 of your DB pension you can take an additional £3666.67 of your Investment Builder tax free (i.e. maximum ammount).
To calculate IB to use to get max TFLS ((23xDB/4)-3xDB)/0.75
If you sitck it in Excel/Google Sheets  etc. then type: =((A1*23/4)-(3*A1))/0.75 where cell A1 is the cell where you enter your DB annual pension sum.

Use this with the figures above you get the same answer a maximum TFLS of £133,333, £60,000 of which comes from the 3 x DB pension, the remaining £73,333 from the Investment Builder, leaving £26,666 uncrystallised.

ussdave

MPLMPL said:

Using the modeller confirms this.
As an example I entered an Income Builder pension of £20,000 pa and an Investment Builder ammount of £100,000.
Run it through the modeller asking for maximum TFLS you get at pension of £20,634 a TLFS of £137,559 and DC fund remaining £0. This would be based on using the entire DC fund in the calculation and the remaining crystallised DC being used to buy the additional £646 pa pension.
If you use these same numbers but choose the option to keep some of the Investment Builder invested and enter that you want to keep £26,666 invested, you get a pension of £20,000 and a TFLS of £133,333. The £26,666 left in the IB being uncrystallised.

This is equivalent to the calculation I posted in another thread to work of maximum TLFS, i.e. 

For every £1000 of your DB pension you can take an additional £3666.67 of your Investment Builder tax free (i.e. maximum ammount).
To calculate IB to use to get max TFLS ((23xDB/4)-3xDB)/0.75
If you sitck it in Excel/Google Sheets  etc. then type: =((A1*23/4)-(3*A1))/0.75 where cell A1 is the cell where you enter your DB annual pension sum.

Use this with the figures above you get the same answer a maximum TFLS of £133,333, £60,000 of which comes from the 3 x DB pension, the remaining £73,333 from the Investment Builder, leaving £26,666 uncrystallised.

So if I'm following this correctly, the amount in your IB is irrelevant when calculating the max TFLS?  Aside from you needing enough in there to make up the difference between the standard (RB * 3) TFLS and your theoretical max?

That does make a lot more sense if I'm honest

So for anyone with IB funds above the max TFLS amount the remainder can be thought of as almost a separate SIPP in terms of tax treatment.  No double-dipping of tax free, and if you aren't able to salary sacrifice it may be worth considering diverting your extra pension saving into a SIPP or similar once you hit close the maximum TFLS.

I suppose if you have gone over this amount and wanted to reduce your ERFs you could "do the transfer dance" - transfer everything out of IB into a SIPP and then transfer back in only enough to cover the max TFLS.  Then use the SIPP funds to bridge to a later age to draw your pension.  If you've got the time to do that @Simes122 you could potentially up your total TFLS as your RB amount would be higher, in turn leading to the higher max TFLS.