USS Flexible retirement confusion

DrWillCUNow

Hi all,

I’m hoping for a bit of a critical eye over some of my pension calculations to see if I’m missing something vital that may come back and bite me on the bum later on.

I’ve been working at Universities (and a member of USS) since 1995. In that time it’s mostly been full time but there have been a few gaps and a little bit of part time working. At the moment I’m working 0.7 FTE at a brick university and 0.27 FTE with the Open University. Following a health scare I’m aiming to retire early in about 18 months’ time when I will be 59 and a bit.

The USS modeler shows that the ‘standard’ offer at this future retirement point would be a pension of  £22,629 with a TFLS of £79,561 built up from £67,886 DC lump sum and £11,675 Investment Builder lump sum. This could be altered to a maximum pension with just the Investment Builder left as the TFLS, or the maximum TFLS with a smaller pension. I also have a small amount of £17,000 lurking in a Virgin personal pension from when I was optimistically self-employed, 25% of which I can take tax free. I am minded to go for the ‘standard’ option as the best balance of pension and TFLS. For the sake of historical precedent, let’s call this ‘Plan A’.

This pension is not quite what I was hoping for to keep me in the manner to which I wish to become accustomed, so, having consulted with USS, I might opt for flexible retirement and lose the brick university 0.7 FTE and keep the OU 0.27 FTE. USS has confirmed that it doesn’t matter where the FTE reduction is if you are working across multiple USS employers, so this is a viable option. I would then take 80% of my pension, plus still work for the OU at £12,200 pa, giving an income of:

£ 22,629 * 0.8 + £12,200 = £30,303 pa

I would still be paying tax on this, plus NI on the OU income if it rises above threshold, plus still paying contributions to USS from the OU. As far as I can tell, this would mean I would also be taking 80% of my DB lump sum of £54,309 as it’s not clear if you have to take the lump sum at this stage or not, though I don’t especially need it yet. I would then fully retire at some later date, probably around at around 66ish and claim the rest of my pension (with a small extra USS contribution) and the rest of my lump sum (or all of it if not taken first, plus probably the Investment Builder as well). This, for the sake of continuity, we shall call ‘Plan B’.

Now I quite like Plan B but I have a nagging feeling that there is some catch somewhere or unseen downside. There are also obviously tweaks too, in terms of the  balance between annual pension and TFLS, lump sum on Flex or not (or even if possible), how much and when. Are there any flaws in this logic of Plan B or possible tweaks? It’s still some way off, but I should probably get on with making plans and there are so many options it’s all a bit confusing.

Ta!

Barralad77

Hi, I will have to take more time to consider the intricacies of the above but one thing that stands out immediately is the line about finishng when you’re 59 but not yet 60. If your USS arrangements were like mine - and very many others - then your contributions up until 2011 will have had a stated pension age of 60. From what I understand, this means that if you finish AFTER turning 60 then your contributions up to that point won’t have an early retirement ‘penalty’ (ERF) applied (i.e., you’ll get 100% of what those contributions are worth). However, if you retire before turning 60 then those contributions will have an ERF applied and USS will take the pension age as being 63.5 for that purpose (I’ve no idea where the 63.5 comes from, for the record). If you look at the ERF table you will see what the factor will be for taking it early (I don’t have the table to hand but I’ll guess it will be between 85 and 90%). In other words, if you hang in until your 60th birthday then you’ll get 100% of the value of the contributions made between1995 and 2011; if you finish even a day early you’ll get the lower % of that. Which is a long way of suggesting that Plan B looks the best, if only to make sure you don’t lose out via the application of the ERF for the sake of a few months. I would give USS a call and check whether this applies to your situation.

DrWillCUNow

That's an interesting take in the ERF, I hadn't considered that. The weird 63.5% think I think comes in after March 2010 or some such date briefly...

DrWillCUNow

1995 sorry...

PJM_62

Are you aware that as well as taking the standard TFLS of 3x pension,
you can also take additional TFLS from IB pot of (upto) 3.66x pension. 

I'm flexi retired , working 0.6 , and taking 80% of pension which was 10k ish.
So as TFLS I got 30k + 36k.

When I fully retire, I'll take the remaining 20% of pension, and do the 3x + 3.66x as TFLS again.
Might even have a bit of IB pot left to draw down using UFPLS in the future. 

katejo

Barralad77 said:

Hi, I will have to take more time to consider the intricacies of the above but one thing that stands out immediately is the line about finishng when you’re 59 but not yet 60. If your USS arrangements were like mine - and very many others - then your contributions up until 2011 will have had a stated pension age of 60. From what I understand, this means that if you finish AFTER turning 60 then your contributions up to that point won’t have an early retirement ‘penalty’ (ERF) applied (i.e., you’ll get 100% of what those contributions are worth). However, if you retire before turning 60 then those contributions will have an ERF applied and USS will take the pension age as being 63.5 for that purpose (I’ve no idea where the 63.5 comes from, for the record). If you look at the ERF table you will see what the factor will be for taking it early (I don’t have the table to hand but I’ll guess it will be between 85 and 90%). In other words, if you hang in until your 60th birthday then you’ll get 100% of the value of the contributions made between1995 and 2011; if you finish even a day early you’ll get the lower % of that. Which is a long way of suggesting that Plan B looks the best, if only to make sure you don’t lose out via the application of the ERF for the sake of a few months. I would give USS a call and check whether this applies to your situation.

I am on SAUL not USS but my final salary arrangements up to 2013 would have suffered an early retirement penalty if I had retired before 60. I didn't and I am nearly 62 now but have found out that the AVC's which I paid between 1994 and my 60th birthday will still suffer a modest   early retirement reduction if I stop before 66. 

Nick_Dr1

PJM_62 said:

Are you aware that as well as taking the standard TFLS of 3x pension,
you can also take additional TFLS from IB pot of (upto) 3.66x pension. 

I'm flexi retired , working 0.6 , and taking 80% of pension which was 10k ish.
So as TFLS I got 30k + 36k.

When I fully retire, I'll take the remaining 20% of pension, and do the 3x + 3.66x as TFLS again.
Might even have a bit of IB pot left to draw down using UFPLS in the future. 

This is exactly what I was trying to find out about - whether flexing and taking part pension affects the ability to take lumps sums from the IB part later (in USS).
Is there any public information about the 3.66x part you mention? Seems like a valuable option.

PJM_62

Nick_Dr1 said:

PJM_62 said:

Are you aware that as well as taking the standard TFLS of 3x pension,
you can also take additional TFLS from IB pot of (upto) 3.66x pension. 

I'm flexi retired , working 0.6 , and taking 80% of pension which was 10k ish.
So as TFLS I got 30k + 36k.

When I fully retire, I'll take the remaining 20% of pension, and do the 3x + 3.66x as TFLS again.
Might even have a bit of IB pot left to draw down using UFPLS in the future. 

This is exactly what I was trying to find out about - whether flexing and taking part pension affects the ability to take lumps sums from the IB part later (in USS).
Is there any public information about the 3.66x part you mention? Seems like a valuable option.

I saw nothing on the USS website.  Got all my info from various threads in the mse forums.
In my application I made it clear I didnt want to commute any of my standard TFLS (3xP), and that I also wanted to take max TFLS from IB (the maths for that work out as 3.66xP).  So total TFLS is actually 6.66xP.
 
Searching for "USS 3.66" in the mse Pensions forum brings up lots of threads where it was discussed.

PJM_62

Should probably add that when fully retired, if there is anything left in the IB pot, when you use UFPLS to draw down, you still get 25% of each drawdown as tax free cash.

Barralad77

Re. The amount of money you can take tax-free (I.e.. the question over where the figure of 6.667 comes from).

Take some hypothetical values:

Annuity = £20,000

3 x LS = £60,000

Investment Builder (IB) = 140,000

(Note LS + IB = £200,000)

You can take 25% of the total value of the pension (the Life Time Allowance - LTA - figure) tax-free.

In USS the LTA is calculated as (20 x annuity) plus anything else (e.g., the LS and IB pot).

Even simpler is to multiply the annuity by 23 (and so catch the 3x LS in a single calculation)

So, for the above, the LTA = (23 x 20,000) + 140,000 = 600,000

With no reverse commutation but maximising the amount you can take tax-free simply multiply the annuity by 6.667 (to give the value of what we’ll refer to as the TFLS):

TFLS = £20,000 x 6.667 = £133,000

Remaining IB > £67,000

(Note: TFLS + IB still = £200,000)

25% of the remaining IB money is also tax-free (in this case, approx. £17,000)

Total tax-free cash is £150,000 (£133,000 + £17,000)

Remember that LTA value is £600,000

25% of £600,000 is £150,000

I think that’s correct, but if I’ve gone wrong then please correct me (as I’ll have to do my numbers all over again!)

PJM_62

Barralad77 said:

Re. The amount of money you can take tax-free (I.e.. the question over where the figure of 6.667 comes from).

Take some hypothetical values:

Annuity = £20,000

3 x LS = £60,000

Investment Builder (IB) = 140,000

(Note LS + IB = £200,000)

You can take 25% of the total value of the pension (the Life Time Allowance - LTA - figure) tax-free.

In USS the LTA is calculated as (20 x annuity) plus anything else (e.g., the LS and IB pot).

Even simpler is to multiply the annuity by 23 (and so catch the 3x LS in a single calculation)

So, for the above, the LTA = (23 x 20,000) + 140,000 = 600,000

With no reverse commutation but maximising the amount you can take tax-free simply multiply the annuity by 6.667 (to give the value of what we’ll refer to as the TFLS):

TFLS = £20,000 x 6.667 = £133,000

Remaining IB > £67,000

(Note: TFLS + IB still = £200,000)

25% of the remaining IB money is also tax-free (in this case, approx. £17,000)

Total tax-free cash is £150,000 (£133,000 + £17,000)

Remember that LTA value is £600,000

25% of £600,000 is £150,000

I think that’s correct, but if I’ve gone wrong then please correct me (as I’ll have to do my numbers all over again!)

Nicely explained 😀👍