Early Retirement from USS ahead of ERF changes this year

Uitlander

It looks like I will be retiring early at the end of September 2024 due to the changes in USS' early retirement factors. I had planned to retire in 2 years time, but the October change to ERFs would push that out by 2-3 years to reach the same level which is just not viable for me. Instead it makes more sense to accept a slightly larger reduction of my DB pension now. This means I'll have less USS pension than I had been planning for - £20,564 p.a plus a lump sum of £73,805 according to the quote. The lump sum will include all of my IB (£12,112). I intend to supplement this with income from cash savings, an ISA and a SIPP. I have been paying excess salary into my SIPP each year, usually as a lump sum at the end of each tax year. I am already aware of the Annual Alowance and how it works.

My planning has been somewhat rushed as my Uni did not think its staff needed to be told about the change in ERFs, so I only found out about this when USS sent out an email mentioning this on 25th July. My Uni has agreed to waive the 3 month notice period so my finishing date has been agreed and the pensions team have confirmed I will retire under the more favourable current terms.

I would like to pay more money into my SIPP and am trying to make sure I don't fall foul of the MPAA.  Am I right in thinking that taking my DB pension and PCLS (which will include all of my IB) does not trigger this? 

Also assuming I am right about the MPAA, should I pay a lump sum in before my retirement date, or can I wait until the end of the tax year? More specifically does the date any payments made into the SIPP matter as long as it is within the tax year? 

What I haven't had a chance to research yet are the pension recycling rules as I want to ensure I stay within them. This is one of the reasons why I am fretting about whether the date any payment is made into my SIPP this year might be important.

Again, if I have understood the MPAA correctly, this will only be triggered when I access my SIPP, so I am thinking that I should leave that pot until last and instead top up my USS income first by drawing on the interest from my cash savings (taxable) and also taking the natural yield from my ISA (tax free). Between them that should bring my income up to around £30K p.a.

I have to admit my head is spinning as this has had to all be negotiated in a mad flurry over the last two weeks. I've always been reasonably good at managing and planning my finances, but this has rather blindsided me as there has been absolutely no publicity about these changes at my Uni so there has been very little time to make plans and check things. I would be interested to see whether others think what I am planning to do makes sense, and whether I have got it right about the MPAA.

Marcon

Uitlander said:

It looks like I will be retiring early at the end of September 2024 due to the changes in USS' early retirement factors. I had planned to retire in 2 years time, but the October change to ERFs would push that out by 2-3 years to reach the same level which is just not viable for me. Instead it makes more sense to accept a slightly larger reduction of my DB pension now. This means I'll have less USS pension than I had been planning for - £20,564 p.a plus a lump sum of £73,805 according to the quote. The lump sum will include all of my IB (£12,112). I intend to supplement this with income from cash savings, an ISA and a SIPP. I have been paying excess salary into my SIPP each year, usually as a lump sum at the end of each tax year. I am already aware of the Annual Alowance and how it works.

My planning has been somewhat rushed as my Uni did not think its staff needed to be told about the change in ERFs, so I only found out about this when USS sent out an email mentioning this on 25th July. My Uni has agreed to waive the 3 month notice period so my finishing date has been agreed and the pensions team have confirmed I will retire under the more favourable current terms.

I would like to pay more money into my SIPP and am trying to make sure I don't fall foul of the MPAA.  Am I right in thinking that taking my DB pension and PCLS (which will include all of my IB) does not trigger this? 

Also assuming I am right about the MPAA, should I pay a lump sum in before my retirement date, or can I wait until the end of the tax year? More specifically does the date any payments made into the SIPP matter as long as it is within the tax year? 

What I haven't had a chance to research yet are the pension recycling rules as I want to ensure I stay within them. This is one of the reasons why I am fretting about whether the date any payment is made into my SIPP this year might be important.

Again, if I have understood the MPAA correctly, this will only be triggered when I access my SIPP, so I am thinking that I should leave that pot until last and instead top up my USS income first by drawing on the interest from my cash savings (taxable) and also taking the natural yield from my ISA (tax free). Between them that should bring my income up to around £30K p.a.

I have to admit my head is spinning as this has had to all be negotiated in a mad flurry over the last two weeks. I've always been reasonably good at managing and planning my finances, but this has rather blindsided me as there has been absolutely no publicity about these changes at my Uni so there has been very little time to make plans and check things. I would be interested to see whether others think what I am planning to do makes sense, and whether I have got it right about the MPAA.

The MPAA is triggered on the day you 'flexibly access' any part of a defined pension contribution 'pot' other than the tax free cash element, UNLESS you use the rest of the pot to buy an immediate annuity, in which case the MPAA isn't triggered.

Accessing a defined benefit pension, or tax free cash, doesn't trigger the MPAA.

FIREDreamer

Doesn’t trigger MPAA
- Taking tax free cash from a DB or DC pension
- Using some or all of a drawdown pot to buy a lifetime annuity (leaving any residual untouched in drawdown)
- Taking a small pot DC pension of up to £10,000 as a lump sum (25% tax free, rest taxable) - you have three bites at this cherry
- Taking a DB pension with or without tax free cash

Triggers MPAA
- Accessing the taxable element of a drawdown pot as a lump sum or income
- Buying a temporary annuity (i.e. an annuity for a limited period, not a lifetime annuity)

List may not be complete.

NoMore

FIREDreamer said:

Doesn’t trigger MPAA
-- Taking a small pot DC pension of up to £10,000 as a lump sum (25% tax free, rest taxable) - you have three bites at this cherry

Just to be clear for people, you have to make sure you request a small pot lump sum withdrawal for this, just taking 10k (25% tax free, rest taxable) without specifying would trigger the MPAA.

Marcon

NoMore said:

FIREDreamer said:

Doesn’t trigger MPAA
-- Taking a small pot DC pension of up to £10,000 as a lump sum (25% tax free, rest taxable) - you have three bites at this cherry

Just to be clear for people, you have to make sure you request a small pot lump sum withdrawal for this, just taking 10k (25% tax free, rest taxable) without specifying would trigger the MPAA.

...and the 'three bites' applies only to personal pensions. You can have any number of 'small pots' from occupational schemes (NB: a workplace pension is not necessarily an occupational scheme).

FIREDreamer

NoMore said:

FIREDreamer said:

Doesn’t trigger MPAA
-- Taking a small pot DC pension of up to £10,000 as a lump sum (25% tax free, rest taxable) - you have three bites at this cherry

Just to be clear for people, you have to make sure you request a small pot lump sum withdrawal for this, just taking 10k (25% tax free, rest taxable) without specifying would trigger the MPAA.

That’s why I said “small pot”. 😀

Hargreaves have a special form to create one from an existing SIPP and pay it out straight away. 😉

Uitlander

Thanks to everyone who has answered so far, but I'm afraid I am none the wiser about the specifics of USS.

I think I need to clarify my first question about triggering MPAA which is USS specific. After the recent years of tinkering it is now a hybrid scheme, with DB and DC elements. The USS retirement quote assumes that the funds built up in the DC part (called Investment Builder - "IB" in my original post) are paid out as part of the PCLS. Ten pages later in the retirement quote it states that if you instead lead the IB intact and draw from it later that will trigger the MPAA, which implies that taking the annual pension and lump sum the 'standard' way will not. But I haven't found anywhere on the USS that addresses this point. My first question is whether taking my USS pension in the standard way does or does not trigger the MPAA as a result of the IB value being included as part of the PCLS.

gwt1965

Uitlander said:

Thanks to everyone who has answered so far, but I'm afraid I am none the wiser about the specifics of USS.

I think I need to clarify my first question about triggering MPAA which is USS specific. After the recent years of tinkering it is now a hybrid scheme, with DB and DC elements. The USS retirement quote assumes that the funds built up in the DC part (called Investment Builder - "IB" in my original post) are paid out as part of the PCLS. Ten pages later in the retirement quote it states that if you instead lead the IB intact and draw from it later that will trigger the MPAA, which implies that taking the annual pension and lump sum the 'standard' way will not. But I haven't found anywhere on the USS that addresses this point. My first question is whether taking my USS pension in the standard way does or does not trigger the MPAA as a result of the IB value being included as part of the PCLS.

Taking your USS pension in the standard way does not trigger the MPAA. 
Taking the IB as tax-free cash at the same time as you take the DB + tax-free lump sum doesn't make a difference and does not trigger the MPAA. 

Uitlander

Thank you @gwt1965, that was the detail I was looking for.