USS Pension advice - Additional contributions and implications

Dot18

Hi,
There seems to be a lot of knowledge on here about USS so just wondered if I could check in with you all before make some changes in my pension contribution in case I'm missing any unseen consequences...

I'm 54 and in the USS. I would like to retire sooner rather than later but have another 6 years before I meet the full state pension requirements (and am past the time to buy added years which were all missed early in career) so probably looking at another 5-6 years working.  I've worked for the University for 20 years (plus 4 in another USS Uni) but much of this part time and currently have a Retirement Income Builder of £17k per annum and £50K lump sum and £13k in the investment builder pot. I'm now on a good wage of £76k after a recent promotion and have recently finished a couple of monthly outgoings of about half my current take-home monthly salary. Now this is freed up I'm thinking of making some of this amount monthly payments to the income builder as it would seem, even if this doesn't perform that well, the tax and NI savings would make this a sensible thing to do. I have some savings in a cash ISA and instant access account if I have some unexpected expenses. I might have to drop the contributions at a later date to help with University costs for children but a year or two before that's needed. As far as I can see I can take 25% of the lump sum tax free when needed.

Am I right in thinking the lump sum is the total (income annual payment + income lump sum + investment lump sum in the year you make the withdrawl)

You can move amounts in the income part between the annual payment and lump sum - any advice on what's sensible given the amounts in question - an does this decision come at the tome of retirement only.

Any pitfalls (apart from the obvious your investment may go down as well as up) that I'm missing of making additional monthly contributions vs putting them in another form of saving given the age I'm starting this at and would also like to retire early for wider family reasons?

I'm finding the USS website and its links quite superficial in its advice and hard to work through systematically to make sure I'm covering all bases!

Many thanks for any advice

Barralad77

Hi Dot18,

The benefits of saving - especially via Salary Sacrifice, if they do it at your place - are substantial in my view. As a higher rate tax payer you should find that the cost to your net salary will be around 60% of what you put into the Investemnt Builder. As you say, putting aside any speculations about growth, this seems to be a ‘no brainier’. I’ve been shoving money in for a few years now and can’t see any downsides. Even the safest Investment fund (Liquidity) yields a return of 5% and in the 2 years I’ve been tracking it has never gone down once (and I check every day…. Sad, I know).

In regards to your question about the 25% issue I posted some calculations showing how to maximise the tax-free status of your IB money in a separate USS thread only yesterday, so that might help (it should be easy to find).

Dot18

Thank you Barralad77 - very useful heads up about ERFs ahead of 60 in your replies too. They don’t make it straightforward do they! 

Barralad77

Dot18 said:

Thank you Barralad77 - very useful heads up about ERFs ahead of 60 in your replies too. They don’t make it straightforward do they! 

No, they do not. The whole ‘it’s 60 if you retire at this age but it’ll be 63.5 if you retire earlier’ is - as far as I can see - completely absent from the USS website. Likewise, the fact that you can’t avoid the ERF hit by deferring taking the pension until you’re 60 (which I long assumed would be the case) is also not mentioned. But then I shouldn’t be surprised; after all, this is the organisation that never bothered to tell anyone that the ERFs were worsening. The fact that members had to discover this for themselves is quite remarkable. Sure, they can upload a reminder for me to update my contact details every bloody month but then don’t bother to tell me something that would potentially have a significant negative impact on the pension I would receive (and, hence, my quality of life in retirement) is, frankly, jaw-dropping.

Dot18

Indeed. I think one of the reasons I’ve been reticent about investing more in the pension is the whole history of how things have changed and been handled since joining - I know we’re not alone in things changing from what the agreement was many years ago but…