USS - Increase lump sum or not?

NickBFS

@swindiff:
The main advantage I can see of withdrawing to a SIPP is if you want to withdraw only from the tax-free part. There can be situations where this allows you to optimise tax liability. If, however, your income is stable and your withdrawals regular, I can't see any major reason not to do it via UFPLS and you might as well leave it in USS in that case (unless you are keen on managing investments yourself rather than let USS do it). 

bluebirdy

PJM_62 said:

@bluebirdy
anything left in IB , after using some as part of the TFLS, has to be taken as UFPLS withdrawals (25% of each one being tax free).
Or you could transfer it all to a SIPP and do flexi-drawdown from there.

Thanks. As I think you’re also saying above, I *still* can’t get my head round the how/why of the other bit (how people can take lump sum connected to both RIB/IB) and still keep most of IB invested.

Real numbers. For one modelled estimate, I can take £20k RIB pension, I currently have £20k in IB only. If I don’t mess about with it, that’s about £70k LS. If I do the whizzy fancy version of the modeller as suggested above to do the max lump sum thing, I seem to DOUBLE my overall LS but still have a similar amount invested (£20k in left in IB) if I choose to. I can do the formula. It is the *principle* I don’t get.

I. Just. Don’t. Understand. It seems insane, free money.

And I kind of need to understand.

Simes122

PJM_62 said:

Simes122 said:

PJM_62 said:

PJM_62 said:

My plans for starting FR later in the year with a flex of 80% of benefits have been cancelled.
Instead .. forms have gone in, to just crack on, and get it in place before April 1st
First pension payday will be 21 Apr. With any luck, I'll get the £241 uplift and annual April increase included in that.

I'll be asking for standard pension + MAX TFLS option that we've discussed on here.
(3 x P) + (3.66 x P, taken from IB)
Fingers crossed that it goes as planned.

Before you commit to this option (and it'll depend on your personal figures as to whether the approach I'll outline makes sense), test in the modeller against the following.

Taking both pots together.

But use the option to preserve 100% of your IB.

This gets you an improved TFLS from your RB from taking "both sides at the same time", while leaving your IB untouched.   And the untouched IB, still has access to 25% TFLS.    Using my figures, this was the optimal way for me to get the most overall out Tax Free, while preserving my entire IB for later.  

Maybe it's because it's Friday, but that has confuddled me good and proper 😀

"This gets you an improved TFLS from your RB from taking "both sides at the same time", while leaving your IB untouched"

That seems contradictory. ?

It does seem contradictory and I’m not an expert.  I’ll show you using my figures from the modeller so I don’t get the calcs wrong,

Projection (at age 66)

Pension £9977
RBLS £29930
IB  503,262

This is irrelevant for me as I’m going at 59 years 8 months so ERFs at work. Plugging this in:

Pension £5523
RBLS £16529
IB £238085

Simple calcs above, 3x RB = RBLS- I don’t want this default option as it’s only 3x

Go to Step 2, Take all my benefits and savings and let’s see what USS does.  Let’s call this A:

Pension £6057
RBLS £40381
IB £197705

ok my tax free RBLS has increased!  Looks good.  But my IB has reduced. And my pension has gone up.  So my IB has been used to fund an increased pension and RBLS.  Tax free, I willl £40.3k plus 0.25 of £197.7   Combined I have £40381 plus £197705 left,  (£238806 pre tax). 

The commutation rates to buy extra pension like that are awful. However they are generous in the other direction, turning pension into lump sum.  

In the section Take less DC savings, I’ll play with that by clicking on make some changes and tell it to preserve  £238085 of my IB (all of it!)

now because I’m taking both parts at once, but preserving my IB pot the figures are (let’s call this B )

Pension £4831
RBLS £32210
IB £238085

This time I’m seeing RBLS @6.6666x pension.  My pension has gone down because it is using RB pension to fund the increased LS at an attractive commutation rate.  And I still have £238k that is uncrystallised.  Combined I have £32210 + £238805 = £271805.

in A: I’ll have the following available to me:  A tax free RBLS of £40831.  Plus a further 25% of my IB = £49426 = £89.8k tax free and £148.28k left over in my IB taxable at my marginal rate.  And £6k a year.

In B: I’ll have the following available to me:  A tax free RBLS of £32210.  Plus a further 25% of my remaining IB = £59701 = £91.911 total tax free.  And I’ll have £179.1k left over at my marginal rate.  And £4.8k a year.

In B I get out slightly more tax free.  But I’m preserving all my IB in B:.  The difference is £30.82k more in B for £1,2k less a year.  

Depending on your tax circumstances, doing it this way might be attractive to some.

sorry that is convoluted but easier than hypotheticals.  It may be advantageous for those who have large IBs relative to RB.

And clearly if you wanted somewhere in between the two you can play with the variables to your hearts content

Simes122

bluebirdy said:

PJM_62 said:

@bluebirdy
anything left in IB , after using some as part of the TFLS, has to be taken as UFPLS withdrawals (25% of each one being tax free).
Or you could transfer it all to a SIPP and do flexi-drawdown from there.

Thanks. As I think you’re also saying above, I *still* can’t get my head round the how/why of the other bit (how people can take lump sum connected to both RIB/IB) and still keep most of IB invested.

Real numbers. For one modelled estimate, I can take £20k RIB pension, I currently have £20k in IB only. If I don’t mess about with it, that’s about £70k LS. If I do the whizzy fancy version of the modeller as suggested about to do the max lump sum thing, I seem to DOUBLE my overall LS but still have a similar amount invested (£20k in left in IB) if I choose to. I can do the formula. It is the *principle* I don’t get.

I. Just. Don’t. Understand. It seems insane, free money.

And I kind of need to understand.

No such thing as a free lunch.  It (think) comes down to two things.  If taking both parts, the pension multiplier jumps from 3x RB to 6.666x RB. That’s a scheme rules/hmrc thing.   And then you are making a choice to use IB to increase your pension and lump sum or in the example I gave, using RB only to increase your LS while leaving your IB alone.  I much prefer the latter because buying annual pension is expensive, buying LS from pension is relatively cheap.  And the factors are decent ish.  

NickBFS

To max your PLCS, you can do it in two ways: you can do it by using your IB or you can do it by commuting DB to PCLS (or any combination of both, I suppose).

AIUI, Simes122 is suggesting to commute some DB rather than using the IB. At current rates, this can be fairly attractive as the commutation rates are fairly good. Indeed, I was planning to do just that too.

However, with the new commutation rates post-April, it will become very unattractive (and, in my case, I will have to go back to the drawing board to review my strategy both in view of the new ERF factors but also of the new commutation rates). 

bluebirdy

Thank you @Simes122 @NickBFS
So this bit:

”If taking both parts, the pension multiplier jumps from 3x RB to 6.666x RB.”

is the how it happens but I still don’t understand why the scheme/HMRC rules work this way. However I appreciate I probably never will!

bluebirdy

I am slowly getting there. The doubling of TFLS is effectively the commutation of some DB pension in my case I think.

But how does it work when it says “take your DC benefits” but then you still leave them ALL invested?! That seems like, er, NOT taking them?

PJM_62

@Simes122 thanks for taking the trouble to expain (and type) all that.  Very useful.  I'm going to go through it step by step to see it in action with my figures.
I hope to move to another (more expensive) house during next 12 months , so need to find best way of getting max TFLS along side my 8k pension.
 
@bluebirdy re the 6.666x multiplier , i dont know exactly why either, other than USS is a hybrid scheme and we're quite lucky to have the option there if you want it. 
Its quite a perk if you're adding to the IB using salary sacrifice AVCs, and taking it out tax free.

Simes122

My understanding is that because it is a hybrid scheme, you are allowed up to 25% of the combined value of both parts of the scheme.  And the value of the RB part is far greater than the 3x RB pension alone.  How that is valued is beyond my knowledge!

Simes122

bluebirdy said:

I am slowly getting there. The doubling of TFLS is effectively the commutation of some DB pension in my case I think.

But how does it work when it says “take your DC benefits” but then you still leave them ALL invested?! That seems like, er, NOT taking them?

Anything remaining uncrystallised and invested in the DC side, can be taken in separate transactions.  25% tax free.