Maximising USS Investment Builder contributions

What_time_is_it

I am currently in the fortunate position of being able to maximise my USS investment builder contributions. Basically this means that I pay the maximum % allowed each month by salary sacrifice without my take home pay going below the National Minimum Wage (which I believe I must stay above each month?)

My question is, would it be possible to make further additional contributions to the Investment Builder without breaking the minimum wage requirement? Maybe by making a lump sum deposit directly to the fund? And, if this is possible, would there be any tax savings to be made by doing so?

Anybody else been in the situation?

ussdave

I'm not sure if you can deposit directly (e.g. it has to be through salary).  I suppose an alternative would be to put the money in a SIPP and then transfer it in.  You'd lose the benefit of zero management fees but they aren't substantial even so, and if it means you can get all of that cash out tax free afterwards then it's likely worth it.

I guess factors to consider are whether or not you're a high rate tax payer (as you'd lose the benefits of SS/NI avoidance) and how close you're likely to be to the ceiling for getting the cash out tax free (if you're over it then you may as well leave the money in the SIPP).

What_time_is_it

Thanks @ussdave

I'm not a higher rate tax payer. Not sure what the ceiling is for getting the cash out tax free. I'm 47, hoping to retire as close to 55 as I can. Currently got DBs worth about £10-11kpa (at 100% normal retirement age) and DC in the Investment Builder of about £120k. I'm looking to hit the Investment Builder as hard as I can with additional funds from a house sale.

ussdave

What_time_is_it said:

Thanks @ussdave

I'm not a higher rate tax payer. Not sure what the ceiling is for getting the cash out tax free. I'm 47, hoping to retire as close to 55 as I can. Currently got DBs worth about £10-11kpa (at 100% normal retirement age) and DC in the Investment Builder of about £120k. I'm looking to hit the Investment Builder as hard as I can with additional funds from a house sale.

MPLMPL previously worked out the calculation for the maximum tax free lump in this post: https://forums.moneysavingexpert.com/discussion/comment/80019715/#Comment_80019715

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.

What is your predicted RB total at retirement age?  I would guess at least £20k/year, likely a fair bit higher?  You might want to use the consultation benefit modeller rather than the one on the main USS site, as the accrual rules are going to change significantly in April.

https://ussconsultation2023.co.uk/members#benefit-modeller

NickBFS

You can't go below the minimum wage with salcac but, AIUI, it should be theoretically possible to make additional contributions deducted from salary (albeit not salsac) beyond the minimum wage threshold. Whether the institution would accommodate that, I don't know.

As @ussdave says, the SIPP route remains available. It is debatable whether it is worth putting it back into USS by transfer or leaving it in the SIPP. Putting it back in USS means being able to take a bigger PCLS. Leaving it in the SIPP, as long as the SIPP supports flexi drawdown, would enable you to take the tax free portion out anyway without taking the taxable part and affecting the AA (and moreover, at a time of your convenience rather than at the same time as the DB portion, which could be particularly useful for somebody retiring early). 

One thing I am unclear about is how you calculate minimum wage when your contract does not specify any hours (as is common for academic salaries). I am in that situation. I maxed my contributions to bring down my taxable pay to £1682 for some months last year (so as to minimise NI contributions, as discussed in this thread) but I am not sure how much lower  I could have gone (probably not much).

What_time_is_it

Thanks again @ussdave. That's really helpful.
I guess I'm looking for around £30k a year in retirement. Assuming that the state pension kicks in at 70, I'll need 15 years of £30k and then x years at c.£18k from age 70 onwards.
I'll give it a try on the modeller.
Not sure how much DC I will need to have built up. Maybe £350k? More?

ussdave

What_time_is_it said:

Thanks again @ussdave. That's really helpful.
I guess I'm looking for around £30k a year in retirement. Assuming that the state pension kicks in at 70, I'll need 15 years of £30k and then x years at c.£18k from age 70 onwards.
I'll give it a try on the modeller.
Not sure how much DC I will need to have built up. Maybe £350k? More?

So, based on £30k RB then the max tax free you can get from the IB is £110k (30 * 3666.67).  This is in addition to the default £90k TFLS/PCLS you'll get from your RB benefits.

The remaining amount could then be drawn down separately by UFPLS, essentially mirroring the benefits you'd get by having the money in a SIPP.

On the basis of the above and your already high IB figures I'd suggest that you put anything beyond the SS of wages into a separate SIPP (but do carry on SSing down to NMW as you're saving NI as well as tax, which you won't do with your SIPP payments).

ussdave

I totally misread your post and thought you said you'd have £30k in RB benefits in retirement sorry.  Please feel free to substitute the figures with your actual projected RB amount once you have it

That said, I think the conclusion will be the same.