USS vs TPS University Pension advice needed

MPLMPL

That sounds about right.
That's exactly what I've done. I transferred all of my Investment Builder to a SIPP and I'm currently building it back up by salary scarificing to just above NLW. By the time I come to take my DB pension, my IB will be at about the level that gets me the maximum out tax free (maybe ~£5-10k over). I can then use the SIPP to enable me to defer drawing the DB pension should I decide to do so.
I could have simply left it all in the IB, but then would lose the link to the DB re maximum TFLS if I started to access via UFPLS to enable me to defer drawing the DB pension.
  
The IB you use does get incorporated into the calculation, just not the whole IB. In the example in the earlier post: Max TFLS is calculated from (DBx23+£73,333)/4
i.e. £20,000x23+73,333 = £533,333 divide by 4 = £133,333 TFLS. £60,000 of this is from the PCLS of 3X DB, the remaining £73,333 is the IB used.

I should add, that £73,333 is the maximum you can get out tax free in this example leaving the remainder uncrystallised. If you say use £10,000 more in the calc i.e. £83,333 you would only get an extra £2,500 tax free leaving £7500 of the IB above the max TFLS from the calcuation, so this would now be crystallised (in the USS modeller, this gets commuted to additional pension). Hopefully that hasn't made it even more complicated, I was just anticipating a futher question.

ussdave

Do you *have* to take that additional TFLS and crystallise anything above and beyond the maximum TFLS that is linked to your RB benefits?   You can't choose to simply have that part of the pot retained separately to be drawn down later via UFPLS?  

MPLMPL

ussdave said:

Do you *have* to take that additional TFLS and crystallise anything above and beyond the maximum TFLS that is linked to your RB benefits?   You can't choose to simply have that part of the pot retained separately to be drawn down later via UFPLS?  

No, you don't have to take it, you can leave it uncrystallised to be drawn down later by UFPLS, leave for someone to inherit or transfer out to a SIPP etc. In the example used in the calculation, the remaining £26,666 in the Investment Builder would stay there uncrytallised. 

ussdave

Makes sense.  Just a paranoid check

Simes122

ussdave said:

@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.  

I’ll try that - thanks @ussdave   I think there is another constraint lurking in there - you’ll see the wording in various places “subject to HMRC limits”.   I googled around and have lost the link but I’ll try and find it again, and one source said that for a db scheme with 1/80 accrual and with 3/80 lump sum, the maximum tax free was 6.666 x the accrual amount.   Which tested against my 5055 RB base is £33,697 - and that is the amount the conversion modeller seems to indicate too.  Now I don’t know if I’m reading the right rules but I think there are some HMRC limits overlaid on all of this.  I’m perhaps an edge case where my RB is << lower than my IB pot and thus had my RB been 20k my TF max would have been 133k etc.  I will try and find the link in my history.

Simes122

Found it:  look here - there are some HMRC limit overlays to consider I think!  https://techzone.abrdn.com/public/pensions/Tech-guide-tax-free-cash#anchor_1

ussdave

I think MPLMPL has outlined the right way to work out the maximum TFLS available for the point of commencement of your pension   

You can opt to have the remaining IB figure retained as a a separate pot, which you can also draw 25% of tax free.  I think your workings out in your reply from a few days ago were quite close to the mark (whereas I was incorrect about including the total IB amount when working out your max TFLS).

edit: To be more clear, I wouldn't worry about the HMRC limits separately as they are factored into the calculation that MPLMPL has provided.  You essentially end up with two pensions (from a TFLS pov): 

1. Your initial USS pension, made up of the RB, and a lump sum equivalent to your total RB * 3 + RB * 3666.67 (this second part is what is taken from your IB total to enhance the TFLS - the remainder then goes into part 2 below).

2. Remaining invested IB funds are treated as a separate uncrystallised pot, which you can then drawn down from by UFPLS, meaning each withdrawal is 25% tax free.

This closely matches your calculations in your initial query I believe.

Caveat: Above of course assumes that you choose the option of "no commutation, max combined TFLS and keep remaining funds invested in IB".

bluenose1

Thank goodness for ussdave, MPLMPL, Swindiff  and the other experts on here. 

I am sure USS could and should do a better job of advising of the options, wonder how many leave not realising they could have increased their tax free cash at no cost to them.
I know from my latest pension quote I would have had no idea that this was an option if it wasn’t for this site. 

Simes122

Thanks all for the advice - sorry it's taken me a while to get an answer back from Pension Admin.   I couldn't quite get them to reply with what I wanted re not modifying my annual pension, just kept getting referred back to the conversion modeller.  Anyway, so I have done some work on that this morning.

What's interesting for me is the minimum annual pension option or no commutation options.   I think these iare optimal for me.    By taking my hybrid benefits (both DB and DC), but using the modeller to preserve my DC, it forces it into converting annual pension into lump sum.   Rows 11 and 12 are the default USS options.   13, and 14 are my input to the modeller.   To get this, you have to use the additional options bit on the modeller where you say how much of your DC pot do you want to preserve, which forces it to use the DB part of my pension.

As you can see, in 13, by preserving my DC fund in an uncrystallised state but taking it in a hybrid way, my annual pension is reduced to 4431 (a reduction from base of £624.50).  I still get a reduced immediate LS of 29552, and my £203856 pot is uncrystallised.   I can then take that via UFPLS (or transfer elsewhere) and get 25% of that tax free too.  This combined approach gives me a combined 80516 Tax Free and is the most I can get out of my combined benefits TF across both parts.  

In 14, I've fiddled with it, to preserve sufficient DC pot, to force the annual pension back down to my base of £5055.  This leaves185325 uncrystallised. 

The most TOTAL TF I can get is in Row 13.

What is really interesting to me is that in 13, I'm pulling the most out of the Fund as possible - £233408 in total (in return for giving up a bit of annual pension that I'd have to pay HR tax on.  (I have RAF pension in payment, which combined with the USS annual pension, puts me into HR tax in Scotland).

Any thoughts or things I might have missed here - it's been a really good discussion and thanks for your thoughts so far!

Pythagorous

MPLMPL said:

That sounds about right.
That's exactly what I've done. I transferred all of my Investment Builder to a SIPP and I'm currently building it back up by salary scarificing to just above NLW. By the time I come to take my DB pension, my IB will be at about the level that gets me the maximum out tax free (maybe ~£5-10k over). I can then use the SIPP to enable me to defer drawing the DB pension should I decide to do so.
I could have simply left it all in the IB, but then would lose the link to the DB re maximum TFLS if I started to access via UFPLS to enable me to defer drawing the DB pension.
  
The IB you use does get incorporated into the calculation, just not the whole IB. In the example in the earlier post: Max TFLS is calculated from (DBx23+£73,333)/4
i.e. £20,000x23+73,333 = £533,333 divide by 4 = £133,333 TFLS. £60,000 of this is from the PCLS of 3X DB, the remaining £73,333 is the IB used.

I should add, that £73,333 is the maximum you can get out tax free in this example leaving the remainder uncrystallised. If you say use £10,000 more in the calc i.e. £83,333 you would only get an extra £2,500 tax free leaving £7500 of the IB above the max TFLS from the calcuation, so this would now be crystallised (in the USS modeller, this gets commuted to additional pension). Hopefully that hasn't made it even more complicated, I was just anticipating a futher question.

@MPLMPL can i ask what your rationale was for transferring from the USS IB to a SIPP? I have both and wodnerif if i should consdier this as well at the moment