Moving USS Investment Builder into SIPP

TeessideMag

Since going part-time in 2021 my earnings have been below the threshold for paying into the investment builder and I cannot see any circumstances in which I'll resume paying into it. So my IB pot will grow only through any growth in the investments within it. I expect to work part-time until c.67 (though not necessarily at a university) and not to take the DB element of USS until 67. I'm 55.

I have a Vanguard SIPP and I'm minded to transfer the IB pot into my SIPP. I suspect the final size of the pot will be broadly similar either way (better funds offset by higher charges) but I would prefer to manage this non-DB element of my pension in one place. 

Am I missing any obvious downside to taking the IB pot out of USS at this stage?

ussdave

TeessideMag said:

Since going part-time in 2021 my earnings have been below the threshold for paying into the investment builder and I cannot see any circumstances in which I'll resume paying into it. So my IB pot will grow only through any growth in the investments within it. I expect to work part-time until c.67 (though not necessarily at a university) and not to take the DB element of USS until 67. I'm 55.

I have a Vanguard SIPP and I'm minded to transfer the IB pot into my SIPP. I suspect the final size of the pot will be broadly similar either way (better funds offset by higher charges) but I would prefer to manage this non-DB element of my pension in one place. 

Am I missing any obvious downside to taking the IB pot out of USS at this stage?

Yes.  It's likely that instead of paying no tax on the IB funds when you draw them you'll instead be paying tax on 75% of them.  Additionally, intead of paying no fees you'll start to pay fees.  Unless there are specific circumstances, you'll probably want to avoid doing this.

Examples of circumstances:

1. You need to draw the IB funds to bridge years between early retirement and drawing your USS pension.
2. The USS investment funds are inappropriate for your use case (unlikely to be a significant factor given the tax and fee benefits you'd be giving up).
3. You have a massive amount in your IB fund so it's significantly over the amount you can get out tax free AND you need to draw those funds separately to your main RB USS benefits.

Another member (MPLMPL) calculated that the maximum tax free IB funds you can draw when taking them at the same time as the RB benefits is RB amount * 3.6667.  E.g if your RB is projected to be £10,000 at retirement age then the amount of IB funds you can draw as an additional tax free lump sum will be £36,667.  If this money were in a SIPP instead you could only draw (£36,667 * 0.25 = ) £9166.75 tax free, with the rest taxed at your normal rate.  

For more detail there are various threads on here if you search for "USS"

ussdave

Also re your plans - if salary sacrifice is available to you then you should consider paying additional USS IB amounts via that, as you'll save NI as well as tax.  For a basic rate tax payer this is a saving of 30%, instead of 20% tax by using a SIPP.

TeessideMag

ussdave said:

Also re your plans - if salary sacrifice is available to you then you should consider paying additional USS IB amounts via that, as you'll save NI as well as tax.  For a basic rate tax payer this is a saving of 30%, instead of 20% tax by using a SIPP.

My university does use salary sacrifice. I will look into the option of paying into IB rather than my SIPP, thanks. I have a second job, and my overall income exceeds £100K but between gift aid and payments into mySIPP my adjusted notional income comes to less than £100K. I know extra payments into a SIPP count for these purposes, but I'm not sure if voluntary extra payments into an occupational scheme can also be counted that way. More research required

Dazed_and_C0nfused

TeessideMag said:

ussdave said:

Also re your plans - if salary sacrifice is available to you then you should consider paying additional USS IB amounts via that, as you'll save NI as well as tax.  For a basic rate tax payer this is a saving of 30%, instead of 20% tax by using a SIPP.

My university does use salary sacrifice. I will look into the option of paying into IB rather than my SIPP, thanks. I have a second job, and my overall income exceeds £100K but between gift aid and payments into mySIPP my adjusted notional income comes to less than £100K. I know extra payments into a SIPP count for these purposes, but I'm not sure if voluntary extra payments into an occupational scheme can also be counted that way. More research required

They almost certainly will, it's the method used which you will need to know to understand how things work.

Relief at source contributions get tax relief added by the pension company and you can deduct the gross contribution for adjusted net income purposes.

Net pay and salary sacrifice contributions cannot be decided when calculating your adjusted net income.  But that is be used they have already reduced your taxable income, the starting point for adjusted net income.

For example salary £110k with 10% sacrificed into pension is taxable pay of £99k.