USS - Increase lump sum or not?

TotesClueless

Hi all

Sorry if this has been asked a gazillion times already, but ...

I am looking to retire later this year when I will be about 59y6m. The new modeller is not yet using the new rules that come into play in April, but assuming there aren't mammoth differences, I'm looking at a few options:

1. Max lump sum - Annual Pension ~£26K, TFLS ~£173K
2. Min lump sum - Annual Pension ~£31K, TFLS £0K (DC Savings Left ~£32K)
3. Use DB only - Annual Pension ~£28K, TFLS ~£85K (DC Savings Left ~£32K)

I don't need the lump sum and was originally thinking of option 2, with the option of using a drawdown to supplement my annual pension until I reach 67 and can (hopefully) take my state pension. Having read a few posts, I am now wondering if it would make more sense to take the maximum lump sum and use it to top up my income tax-free?

If it helps, the commutation factor for somebody of my age seems to be about 22-23 at the moment, whilst the reverse factor is 30-31.

ussdave

You'll probably want to spend more time examining the figures but in your position I'd want to double-check that option 1 doesn't involve commutation of your RB benefits as this is usually not a great option.  However, maximising your lump sum *without* commuting any RB benefits is usually a good option, so I suspect option 1 is closest to optimal.

What is your projected RB benefits sum if taken at the age you plan to retire at (ignoring any options for using your IB funds to increase, or commuting anything).  Similarly, what is the projected value of your IB fund at that point?  With these figures it will be possible to work out the total TFLS you can achieve without commutation.

Also, you mention that you are planning to retire at 59.5 years old.  Based on your age and benefit totals I would very carefully compare the figures against retiring 6 months later, on or after your 60th birthday.  Some of your USS benefits may be drawable with no early retirement factors at 60, whereas before then you would lose the full ERF.  A simple way to check this with the calculator is to play with the different retirement ages and take note of the increase in RB benefits at each age point.  You may see that at 60 there's a significant uplift over 59 (and then a smaller uplift at 61).  

TotesClueless

ussdave said:

You'll probably want to spend more time examining the figures but in your position I'd want to double-check that option 1 doesn't involve commutation of your RB benefits as this is usually not a great option.  However, maximising your lump sum *without* commuting any RB benefits is usually a good option, so I suspect option 1 is closest to optimal.

What is your projected RB benefits sum if taken at the age you plan to retire at (ignoring any options for using your IB funds to increase, or commuting anything).  Similarly, what is the projected value of your IB fund at that point?  With these figures it will be possible to work out the total TFLS you can achieve without commutation.

Also, you mention that you are planning to retire at 59.5 years old.  Based on your age and benefit totals I would very carefully compare the figures against retiring 6 months later, on or after your 60th birthday.  Some of your USS benefits may be drawable with no early retirement factors at 60, whereas before then you would lose the full ERF.  A simple way to check this with the calculator is to play with the different retirement ages and take note of the increase in RB benefits at each age point.  You may see that at 60 there's a significant uplift over 59 (and then a smaller uplift at 61).  

Many thanks for the comments. If I understand your question, I think that option 3 I presented represented the scenario where I don't do anything with my Investment Builder and take the standard TFLS equivalent to 3x my annual pension. My main reason for wanting to go at 59.5 is that I just can't face the prospect of starting another academic year - I've been in USS for 30+ years. I tried looking at the difference between 59 years and 11 months and 60 years 0 months and just don't understand what I saw - my projected annual pension/TFLS/Investment Builder figures were showing as:

59y6m: AP~28.5K, TFLS~85.2K, IB~31.7K
59y11m: AP~29.4K, TFLS~88.3K, IB~39.6K
60y0m: AP~29.2K, TFLS~87.4K, IB~41.3K

Not sure if this is a glitch?

swindiff

Those numbers don't look right to me.  It makes no sense that your pension would be lower at 60 than it would be at 59 and 11 months.  In fact I would expect the opposite, and for it to be considerably lower at 59y and 11m than at 60 due to the fact that your entire pension would be getting actuarially reduced, rather than just the post 2011 years.  Any pension built up prior to 2011 could be taken at the age of 60 with no actuarial reduction, but go one month earlier and it all takes a hit.

swindiff

I have just checked mine, there has to be a bug in the modeller at 60 years and 0 months

59Y 9M  £18,505
59Y 10M £18,601
59Y 11M £18,685
60Y 0M  £18,471
60Y 1M  £19,542
60Y 2M  £19,602

TotesClueless

swindiff said:

I have just checked mine, there has to be a bug in the modeller at 60 years and 0 months

59Y 9M  £18,505
59Y 10M £18,601
59Y 11M £18,685
60Y 0M  £18,471
60Y 1M  £19,542
60Y 2M  £19,602

Hi swindiff
Many thanks for checking this - glad it's not just me 

ussdave

TotesClueless said:

ussdave said:

You'll probably want to spend more time examining the figures but in your position I'd want to double-check that option 1 doesn't involve commutation of your RB benefits as this is usually not a great option.  However, maximising your lump sum *without* commuting any RB benefits is usually a good option, so I suspect option 1 is closest to optimal.

What is your projected RB benefits sum if taken at the age you plan to retire at (ignoring any options for using your IB funds to increase, or commuting anything).  Similarly, what is the projected value of your IB fund at that point?  With these figures it will be possible to work out the total TFLS you can achieve without commutation.

Also, you mention that you are planning to retire at 59.5 years old.  Based on your age and benefit totals I would very carefully compare the figures against retiring 6 months later, on or after your 60th birthday.  Some of your USS benefits may be drawable with no early retirement factors at 60, whereas before then you would lose the full ERF.  A simple way to check this with the calculator is to play with the different retirement ages and take note of the increase in RB benefits at each age point.  You may see that at 60 there's a significant uplift over 59 (and then a smaller uplift at 61).  

Many thanks for the comments. If I understand your question, I think that option 3 I presented represented the scenario where I don't do anything with my Investment Builder and take the standard TFLS equivalent to 3x my annual pension. My main reason for wanting to go at 59.5 is that I just can't face the prospect of starting another academic year - I've been in USS for 30+ years. I tried looking at the difference between 59 years and 11 months and 60 years 0 months and just don't understand what I saw - my projected annual pension/TFLS/Investment Builder figures were showing as:

59y6m: AP~28.5K, TFLS~85.2K, IB~31.7K
59y11m: AP~29.4K, TFLS~88.3K, IB~39.6K
60y0m: AP~29.2K, TFLS~87.4K, IB~41.3K

Not sure if this is a glitch?

I can reproduce those results too.  Very odd.  I'm guessing that it's not applying some kind of of uprating somewhere.  Given a new version of this is due out soon it may be worth re-running the figures then.  Retiring at 60 should be a significant uplift in your benefits.  For myself it's not so much as I only have a limited amount of pre-2011 accrual.  It's still something I plan to take advantage of though.  

Regarding the option I was advocating, you want to draw as much of your IB as tax free cash as possible, not leave it alone.  

I can completely understand not wanting to go through another start of year.  Is there any chance you could live off savings for a short while to delay drawing your pension?  Or even using a zero percent credit card to cover the 6 months?  I suspect once you get the real figures to compare drawing your pension at 59.5 vs 60 you'll be very motivated to go for the 60 option, even if you do leave work earlier.

So, putting aside the 59.5 vs 60 and the weird figures that the calculator is giving you for the moment, let's assume some round figures that are in the right ballpark:

E.g.
RB = £30,000/year PCLS/TFLS: £90,000, IB: £40,0000

Assuming you take the option of "maximise total tax free lump sum by drawing my Investment Builder benefits at the same time as the Retirement Builder but without ANY commutation" then you would end up with something like this:

Maxmimum tax free cash on top of your standard PCLS/TFLS = 
RB (£30,000) * 3.6667 = ~£110,000 (however, you have less than this amount in your Investment Builder, so this will top out at your total IB funds).

With the above in mind, your total TFLS will be: £90,000 + £40,000 = £130,000
Your RB will be: £30,000 (unchanged from the default, i.e. no commutation)

If you had more money in your Investment Builder you could draw all of it out tax free, subject to the £110,000 limit above (meaning that if you managed to have £110,000 in your Investment Builder, you would have £90,000 + £110,000 = £200,000 TFLS).

TotesClueless

ussdave said:

TotesClueless said:

ussdave said:

You'll probably want to spend more time examining the figures but in your position I'd want to double-check that option 1 doesn't involve commutation of your RB benefits as this is usually not a great option.  However, maximising your lump sum *without* commuting any RB benefits is usually a good option, so I suspect option 1 is closest to optimal.

What is your projected RB benefits sum if taken at the age you plan to retire at (ignoring any options for using your IB funds to increase, or commuting anything).  Similarly, what is the projected value of your IB fund at that point?  With these figures it will be possible to work out the total TFLS you can achieve without commutation.

Also, you mention that you are planning to retire at 59.5 years old.  Based on your age and benefit totals I would very carefully compare the figures against retiring 6 months later, on or after your 60th birthday.  Some of your USS benefits may be drawable with no early retirement factors at 60, whereas before then you would lose the full ERF.  A simple way to check this with the calculator is to play with the different retirement ages and take note of the increase in RB benefits at each age point.  You may see that at 60 there's a significant uplift over 59 (and then a smaller uplift at 61).  

Many thanks for the comments. If I understand your question, I think that option 3 I presented represented the scenario where I don't do anything with my Investment Builder and take the standard TFLS equivalent to 3x my annual pension. My main reason for wanting to go at 59.5 is that I just can't face the prospect of starting another academic year - I've been in USS for 30+ years. I tried looking at the difference between 59 years and 11 months and 60 years 0 months and just don't understand what I saw - my projected annual pension/TFLS/Investment Builder figures were showing as:

59y6m: AP~28.5K, TFLS~85.2K, IB~31.7K
59y11m: AP~29.4K, TFLS~88.3K, IB~39.6K
60y0m: AP~29.2K, TFLS~87.4K, IB~41.3K

Not sure if this is a glitch?

I can reproduce those results too.  Very odd.  I'm guessing that it's not applying some kind of of uprating somewhere.  Given a new version of this is due out soon it may be worth re-running the figures then.  Retiring at 60 should be a significant uplift in your benefits.  For myself it's not so much as I only have a limited amount of pre-2011 accrual.  It's still something I plan to take advantage of though.  

Regarding the option I was advocating, you want to draw as much of your IB as tax free cash as possible, not leave it alone.  

I can completely understand not wanting to go through another start of year.  Is there any chance you could live off savings for a short while to delay drawing your pension?  Or even using a zero percent credit card to cover the 6 months?  I suspect once you get the real figures to compare drawing your pension at 59.5 vs 60 you'll be very motivated to go for the 60 option, even if you do leave work earlier.

So, putting aside the 59.5 vs 60 and the weird figures that the calculator is giving you for the moment, let's assume some round figures that are in the right ballpark:

E.g.
RB = £30,000/year PCLS/TFLS: £90,000, IB: £40,0000

Assuming you take the option of "maximise total tax free lump sum by drawing my Investment Builder benefits at the same time as the Retirement Builder but without ANY commutation" then you would end up with something like this:

Maxmimum tax free cash on top of your standard PCLS/TFLS = 
RB (£30,000) * 3.6667 = ~£110,000 (however, you have less than this amount in your Investment Builder, so this will top out at your total IB funds).

With the above in mind, your total TFLS will be: £90,000 + £40,000 = £130,000
Your RB will be: £30,000 (unchanged from the default, i.e. no commutation)

If you had more money in your Investment Builder you could draw all of it out tax free, subject to the £110,000 limit above (meaning that if you managed to have £110,000 in your Investment Builder, you would have £90,000 + £110,000 = £200,000 TFLS).

Many thanks ussdave - these are very interesting thoughts. I guess it comes down to tryng to work out if the cost of living off savings for 6 months and then having a higher pension for the remainder of my life (say x years) is better than drawing a reduced pension for x+0.5 years. I will need to see the difference between my annual pension at 59.5 vs 60 and then do some arithmetic to see how many years I might need to live to break even. Let's hope that the new modeller is available soon.

swindiff

I know when I used the old modeller the difference in my pension, which is considerably less than yours, between 59Y and 11M and 60Y, was about £1500/year.
I have contacted my University USS liaison to highlight the anomaly in the new modeller

Beckster1964

TotesClueless said:

swindiff said:

I have just checked mine, there has to be a bug in the modeller at 60 years and 0 months

59Y 9M  £18,505
59Y 10M £18,601
59Y 11M £18,685
60Y 0M  £18,471
60Y 1M  £19,542
60Y 2M  £19,602

Hi swindiff
Many thanks for checking this - glad it's not just me 

I have had the same problem and so I contacted USS. They said that they know there is a bug in the way in which the modeller is working and are planning an update for the 18th January 2024. Hopefully that will fix this anomaly. Will be interesting to rerun the numbers soon after to see if it has been fixed.

TotesClueless

Beckster1964 said:

TotesClueless said:

swindiff said:

I have just checked mine, there has to be a bug in the modeller at 60 years and 0 months

59Y 9M  £18,505
59Y 10M £18,601
59Y 11M £18,685
60Y 0M  £18,471
60Y 1M  £19,542
60Y 2M  £19,602

Hi swindiff
Many thanks for checking this - glad it's not just me 

I have had the same problem and so I contacted USS. They said that they know there is a bug in the way in which the modeller is working and are planning an update for the 18th January 2024. Hopefully that will fix this anomaly. Will be interesting to rerun the numbers soon after to see if it has been fixed.

Thanks for the update - very helpful. Given how important the modeller is, I’d hope it was more reliable.