USS - Increase lump sum or not?

swindiff

Many thanks for your post cupofassam 

ussdave

cupofassam said:

I am one of the elected negotiators on the USS's committee that in effect sets the contribution and benefit rates. We were unhappy with this change which was something we have ben told we could not affect. It is not a consequence of or part of the negotiated settlement to restore benefits to 2022 levels. We argue that because it is a retrospective global change to all earned benefits, it is something we should agree and look into. The picture is complicated. All benefits earned up to 2011 have a  NPA of 60; everything to 2022 of 65, everything thereafter 66 (though that will change for post-2011, as can be seen). So, as someone comments above, if you retire 'early' over 60 your pre-2011 benefits are not reduced. In fact, they are increased by the late retirement factors, as I understand it. This may mitigate in some small way for the reduction of benefits earned thereafter, but it's little comfort for those who want to retire before 60.. 

The reason of course for reducing benefits on early retirement is that you will receive them longer, and so to gain a cost-equivalence with those retiring at the NPA, you should get a reduction so that over time in retirement you gain something close to the same net. If that were the only reason, of course then the factors need not change. One argument made is that because you are retiring early, then you are removing money from a fund that needs to keep growing to pay every else's pension. Fair enough - but the USS scheme is now not only in a period of theoretical surplus, but also there are agreements to retain that surplus to some degree. So, with a surplus, you are dipping a very small toe in to that large lake to retire early, not into the fund to pay other pensions. That argument is flawed: why make the reductions worse during a period of surplus than what they were during a period of theoretical deficit. Now, the only reason we can see of this is that they are pegging future growth against the gilt rate, which we have argued is a severely flawed aspect of the valuation methodology. See our paper here: https://medium.com/@marktaylorbatty_59000/uss-volatility-is-anyone-spotting-a-pattern-4ee42f921d1e

So, a flawed aspect of the valuation - which we are seeking to address for future valuations now that the pension has been restored to pre-2022 levels - seems to be causing this drag on the early-retirement factors. That's something we will seek to get to the bottom of. 

Really interesting, thank you.  

Mostly quoted you to make sure your post isn't missed as it's at the very end of page 4

gwt1965

cupofassam said:

All benefits earned up to 2011 have a  NPA of 60; everything to 2022 of 65, everything thereafter 66 (though that will change for post-2011, as can be seen). 

I think this is incorrect.

According to USS:

MPLMPL

gwt1965 said:

cupofassam said:

All benefits earned up to 2011 have a  NPA of 60; everything to 2022 of 65, everything thereafter 66 (though that will change for post-2011, as can be seen). 

I think this is incorrect.

According to USS:

Was about to make the same comment, only 60 if stipulated in contract. My service from 1998-2021 is 63.5.

swindiff

Luckily my contract stipulates 60, unluckily I am only 53 (without wanting to wish my life away)

bluenose1

Many thanks for your thoughts @cupofassam.
I cant believe that USS have not communicated this change, yet have sent numerous comms over the £215 increase.
i have recently had a quote from USS  to take my pension from 1st April 24 at age 58 and had been working on those figures.
i would hope that they are going to urgently advise all members and particularly those who have requested quotes to this significant, detrimental change, but won’t hold my breath.
Thanks again.

PJM_62

MPLMPL said:

Incidentally, unless I've misinterpreted, the reverse commutation appears to be more favourable for converting Retirement Income Builder lump sum into pension? You get £1000/factor of additional pension for every £1000?
Think you can only do this with the RB lump sum though, they stopped reverse commutation of Investment Builder?

Re your highlight, does this mean 1k of standard RIB LS buys an extra £40 pension per year?
I've nothing to compare to, but that still looks measly   

If you did this with half of the RIB LS, say 10k of 20k (to buy 400 per year) , 
how would it affect the [3x  +  3.66x] calc for also taking max combined TFLS (RIB and IB) ? 

2nd_time_buyer

MPLMPL said:

gwt1965 said:

cupofassam said:

All benefits earned up to 2011 have a  NPA of 60; everything to 2022 of 65, everything thereafter 66 (though that will change for post-2011, as can be seen). 

I think this is incorrect.

According to USS:

Was about to make the same comment, only 60 if stipulated in contract. My service from 1998-2021 is 63.5.

From the earlier post on page 3. The letter from USS said:

USS Benefits accrued up to 30 September 2011:                                                 Payable unreduced from age 63 ½

USS Benefits accrued from 01 October 2011 to 05 October 2020:                Payable unreduced from age 65

USS Benefits accrued from 06 October 2020 onwards:                                     Payable unreduced from age 66

 

Transferred in service from LGPS in September 2005:                                       Payable unreduced from age 60

 

Please note that if you elect to retire from active service any time from age 60, with employer consent, your USS benefits accrued up to 30 September 2011 will be payable unreduced from age 60.

The last sentence could suggest that you can retire at 60 with unreduced 2011 benefits. But presumably as it is before the NPA for those benefits (63.5) you will not get late retirement factors applied on those benefits until you are 63.5...

...unless this letter was specific to the poster's case (maybe as a result of transferring in the LGPS service). 

swindiff

Because my contract states I can retire at the age of 60, that relates to all benefits prior to 2011, those transferred in and those from employment into USS (with employers consent).  However if I were to leave my current employment before the age of 60 the NRA for my USS benefits before 2011 reverts to 63 1/2

MPLMPL

Yes, approximately. At 55 it now buys £1000/25.74 = £38.85. Before it would have been £1000/36.49 = £27.40. This is how the calc was made in the example on USS website.

Original calc with no commutation is ((23xDB/4)-3xDB)/0.75. If you want it in fractions express 3DB in quarters i.e. =12/4DB and dividing by 0.75 i.e. 3/4 is the same multiplying by 4/3 then you get (23/4DB - 12/4DB)*4/3 = 11/4DBx4/3 = 11/3 = 3.667. 

As you're not taking the entire PCLS, the calc, I think, is (20xRB after reverse commutation + PCLS that you don't commute)/4 then subtract the PCLS from the RIB that you are taking, then divide total by 0.75. 
I guess if you're commuting half i.e. taking half of the RIB it would become ((21.5DB/4)-1.5DB)/0.75
I think you can use the modeller to play with this, see if it works.
Happy to be corrected!