USS flex retirement and TFLS question

bluebirdy

Hi,

had some amazing advice already from you experts here but despite my very rapid learning curve, I remain v confused by somethings.

I’ve gathered that it is possible to maximise TFLS by taking RIB/IB together (is that right?) but that (because LS is calculated on total pot?) some of the IB part can remain invested? I really cannot get my head around this and though I’ve read many threads, if someone can give me a v simple (think Humanities level of numeracy… ;D ) explanation I’d be grateful.

Second, I am confused on what happens with TFLS if taking flex retirement. Does each % bite count as the same ‘initial’ bite for TFLS purposes as per the above question (ie do we get the same tax terms each time we flex?) or do we only receive the tax advantage on the first flex?

if anyone can help this pensions dunce, I’d be grateful. I did ring USS and ask but they weren’t terribly helpful (I may not be understanding enough to ask the right questions yet though).

Thanks.

xylophone

https://www.uss.co.uk/for-members/thinking-about-your-future/understanding-your-options/your-options-at-different-ages-and-stages#:~:text=What is flexible retirement?,on building for the future.


Have you checked out all the information in the above?

bluebirdy

xylophone said:

https://www.uss.co.uk/for-members/thinking-about-your-future/understanding-your-options/your-options-at-different-ages-and-stages#:~:text=What is flexible retirement?,on building for the future.


Have you checked out all the information in the above?

I have, yes - it is helpful enough about the headlines, but it doesn’t quite give the granular detail about how to maximise TFLS, I don’t think?

I’m trying to get more of a sense of what I might lose out on by flexing - I love paying tax and think we should all pay more of it but I’d like to choose whether I give a massive chunk upfront!

Ive had some great direct advice and workings out from @PJM_62 but I could still do with understanding the TFLS rules when flexing a bit more.

bluebirdy

I’m thinking about this kind of thing posted (screenshot below - too new here to know how to link/copy threads)
by @ussdave and  @MPLMPL from a previous thread, ie Maxing lump sum.

I can see how this works for retiring in one go. But if the USS flex retirement option were possible, how does it work?

For example, I have projected £33k pa in RIB at 66 (I’m now 56) and possibly £100k in IB (although pot now stands at about £20k so this seems rather ambitious to me - I am, since finding advice here, now realising I should be paying more into this).

If I were to take two flexes before retiring fully eg.
1. Reduce to 0.7 contract in 2024, taking 30% of benefits but maximising TFLS as below;

2. Flex again to 0.4 contract in 2026 at 59, and take a further 40% of benefits (I think the flex contract and benefits don’t have to match but just for convenience)

3. Fully retire at 62 in 2029

Then what might things look like?

just have no idea if each flex parts counts as three goes at “taking benefits together” or if the first flex counts as gaining the TF advantage, and thus any later lump sum is calculated differently.

This is possibly a very, very stupid question, but I am *very* new to all of this and the various modellers/calculators/online guidance do not address this AFAIK. And I’ve literally only paid attention to this in the last week so it has been a rapid learning curve.

We will have need of some lump sum in this period if flex retirement, as we want to work less a bit, but we have no savings and we also have a kid likely to go to university for whom we’d like to ‘ringfence’ a contribution for rather than just dribble out of remaining salary. There’s likely to be a bit of a lean period when OH fully retires, I’m pt and SP has not kicked in, so I’m trying to work out how to smooth this out. But we have to balance this with still having a mortgage to pay off of £140k so we’d like to either overpay max amount each year (yes, yes I NOW know we should be pensioning it away, but OH is less convinced by this) or max lump sum to cover it.

I’m imagining doing something sensible with bits of lumpsum to help this smoothing (don’t really understand what yet) but it doesn’t feel like good value to commute (is that what it is called?) to DB esp as we should have enough income - we think around £37k min will be enough for our ambitions and SP will boost that - I think even with ER reductions & esp after SPA.

Husband is a bit older (60) than I but with less pension (also in USS, projected £24k pa +£80k pot) and might like to do similar but possibly with more rapid reduction to retire at eg 61 or 62.

Both of us would like to keep working a while longer, partly to also keep building up our IB pot for purposes above and SP. We will both get full SP if we work for 2 more years each.

I’m trying to work out if we can do the things we want to do - flex retire, support uni kid, pay off mortgage by/when fixed rate ends - over the next 4-6 years, or if we need to work more/longer to be able to achieve our hopes.

bluenose1

I am going through the “saga” of applying for my pension at the moment. I have found the USS central pensions team are much more knowledgeable than my university pension team and know others from different universities have had same experience. 
When I got my first quote I was given

Standard pension plus 3  x lump sum tax free.
Maximum tax free lump sum (which they do by reducing your lump sum to increase your annual pension.) With a reverse commutation of 37:1 not something I would ever consider.
And  it’s not clear the way the info is presented you are losing your lump sum!! 

What they don’t tell you, unless you ask for it is
1. Your standard pension with the maximum tax free lump sum.
2. The lowest  pension with the maximum tax free lump sum
However you can get get a good indication of these figures yourself by using the calculator. 

To get the results for options 1 you need to reduce the DC savings you take in the calculator, until it matches what your normal standard pension would be.

i would say look at all the options on the USS calculator, and work out what’s best in your circumstances.
i have done a spreadsheet of our likely income and likely tax until 67 for each scenario. We have been paying maximum into my pension for several years and with salary sacrifice has been a much better return than overpaying mortgage. We have about £34k left when our fixed term ends so have factored in using some of my lump sum for this. Definitely worth doing the sums on overpaying mortgage compared to increased pension contributions, was a no brainer for us.

Definitely not a stupid question re Flex as guidance not clear.
i would  ring the central USS team if I were you with your questions for some guidance.
It is a steep learning curve, some of us on here have been planning retirement for several years using the advice on here and still have questions. I must have updated my spreadsheets 100s of times.
 

PJM_62

Hi bluebirdy.  I agree with bluenose   (you guys related ?  )  , give the USS team a call to discuss the way FR works. Theyve always been super friendly and helpful with me.
Once I'd had it explained to me I was very happy to go for it.
What I like about it, is that for each flex , you choose the % of DB you want to take , (obv actuarilly reduced for early payment) , and thats the start of you getting that chuck of your pension for life.  And the Max TFLS you get at that flex, can be a combined with IB lumpsum.  3xP (RIB DB) + 3.66xP (IB DC) .
And this happens at each flex.
So, if you do 3 flexes (the 3rd being fully retiring)  youll have 3 x streams of DB pension in payment , and have had a Max Tax free lump sum payout 3 times.  And anything left in IB after that is available for UFPLS withdrawls, with each one of those being 25% tax free. 

PJM_62

If anyone HAS done USS Flexible Retirement , I'd be very interested to hear a real world account of how it worked / went.

bluebirdy

Thanks all.

I’m also keen to see how it goes as others do this.

Have now decided I’m going to ask USS for a projection based on my initial idea of flexing to 0.6 next year, and taking 40% TFLS.

The bits I was struggling to get my head round is whether once you’ve flexed once, whether you have to make the SAME decisions about what is left (ie the assumption is that every remaining portion of pension is parcelled up the same way as the first)

And I really don’t understand the maths/tax behind taking maximum TFLS but then leaving some in the IB, but I will try to keep following theexpert knowledge here until I get a projection.

Has anyone actually had a flex projection, and does this list options for the remainder of the pension not yet taken? do you have to specify exactly your later intentions to work things out (ie I’d like to know a couple of different scenarios for what is left!)?

PJM_62

I asked for two quotes based on starting FR on 1st Apr 24.  Taking 60% or 80% of pension and NOT commuting any of TFLS to increase pension.
Got exactly what I asked for.

TBH if you have a date in mind for FR, you could use the modeller and tell it you want to retire fully at that date. The figure that's displayed for pension is the 100% figure. So just use that to work out the percentages for your flexes. 

If the 100% figure was pension of 10k, your 40% flex would be 4k.
Standard TFLS of 3 x 4k = 12k
Further TFLS from IB pot of up to 3.66 x 4k = 14.6k
Total combined TFLS of 26.6k

And after a year you could reduce working hours some more and do another 40% flex as above.
Then after another year do final flex (fully retire) and take the final 20% + TFLS 

Hopefully one of the regular USS posters on here will correct me if I'm wrong.
@ussdave @swindiff @MPLMPL ?

bluebirdy

Thanks @PJM_62. I had a useful phone call with USS and they’re going to send a quote for flexing next year to 0.6 with 40% benefits.

I think I was probably overthinking the tax/what if things… The very helpful advisor suggested, as you did, just portioning up the amount if I took full benefits next year, and pointed out that while they couldn’t forecast exactly what the later bits would look like, it definitely isn’t going to be any less!

I was also getting in a tizzy about taking max TFLS at the start and whether it was the FIRST flex only that counted so that the whole max lump sum could be considered that way.

The advisor, I think, confirmed that each bite could be taken in exactly the same way. In other words, you don’t only get that tax/max LS benefit the first flex.

I still don’t really understand whether I can mix and match HOW I take different bits of the flex, but I think as long as I can work out roughly what my guaranteed income will be and be happy with that, I’m ok.

But if anyone wants to write me a formula/spreadsheet that can model the bits AFTER the first flex, I’d be delighted. Mind you, so would USS evidently as they obviously haven’t got one yet 😆 Side hustle for a numerate coder, perhaps?!

ussdave

Sorry for not responding to this at the time.  To be honest I'm not very familiar with the flexible retirement rules.  I'll have to read up on it a bit to be sure but PJM_62's post looks like a good place to start.

Also interested to hear the final outcome of this