USS - Newbie needing help!

Cobbler_tone

Docbarty66 said:

13FL said:

A newbie here, but following discussions with interest,  I'm roughly in the same boat here - planning to take VS this year  and with USS and thus assessing pension options. 

I was curious about OP plans to take the taxable element of VS (81K) and add to pension - is this through your employer directly adding to pension or after you receive the VS package?  If after, and this would be in a new tax year, how does this affect you tax bracket? Would this be taxable income and thus push you into 40%, which would then be applied to your AP ?

Apologies if this is a naive question, all a bit new to me.

So, I have a meeting with my employer's pension team on April 1st and they will fill in the relevant forms with me apparently, BEFORE I receive the VS package. This means that the money I receive on April 30 will be April's earnings PLUS the 3 months tax free element. Apparently it's not 30k tax free, it's up to 30k, depending on your salary. My 15 months severance is 12 months PILON plus an extra 3 months tax free. The PILON is taxable. I pay at the higher rate.

With the numbers you are citing then £30k will be tax free. Someone getting a lot less including paid notice would be taxed on that. Statutory or enhanced redundancy payments are tax free up to £30k. Your redundancy in isolation must be way over that.

Cobbler_tone

My OH has secured 15 months notice to VS so we have plenty of time to get our heads around it.

Docbarty66

Cobbler_tone said:

Docbarty66 said:

13FL said:

A newbie here, but following discussions with interest,  I'm roughly in the same boat here - planning to take VS this year  and with USS and thus assessing pension options. 

I was curious about OP plans to take the taxable element of VS (81K) and add to pension - is this through your employer directly adding to pension or after you receive the VS package?  If after, and this would be in a new tax year, how does this affect you tax bracket? Would this be taxable income and thus push you into 40%, which would then be applied to your AP ?

Apologies if this is a naive question, all a bit new to me.

So, I have a meeting with my employer's pension team on April 1st and they will fill in the relevant forms with me apparently, BEFORE I receive the VS package. This means that the money I receive on April 30 will be April's earnings PLUS the 3 months tax free element. Apparently it's not 30k tax free, it's up to 30k, depending on your salary. My 15 months severance is 12 months PILON plus an extra 3 months tax free. The PILON is taxable. I pay at the higher rate.

With the numbers you are citing then £30k will be tax free. Someone getting a lot less including paid notice would be taxed on that. Statutory or enhanced redundancy payments are tax free up to £30k. Your redundancy in isolation must be way over that.

It's not redundancy, it's severance...I believe they are different agreements. I am being paid my salary in lieu of the 12 months notice they would have to give me, which is taxable...it's the 3 months which is tax free. It's 30k if you take redundancy but not severance...so I have been led to believe...

Cobbler_tone

Docbarty66 said:

Cobbler_tone said:

Docbarty66 said:

13FL said:

A newbie here, but following discussions with interest,  I'm roughly in the same boat here - planning to take VS this year  and with USS and thus assessing pension options. 

I was curious about OP plans to take the taxable element of VS (81K) and add to pension - is this through your employer directly adding to pension or after you receive the VS package?  If after, and this would be in a new tax year, how does this affect you tax bracket? Would this be taxable income and thus push you into 40%, which would then be applied to your AP ?

Apologies if this is a naive question, all a bit new to me.

So, I have a meeting with my employer's pension team on April 1st and they will fill in the relevant forms with me apparently, BEFORE I receive the VS package. This means that the money I receive on April 30 will be April's earnings PLUS the 3 months tax free element. Apparently it's not 30k tax free, it's up to 30k, depending on your salary. My 15 months severance is 12 months PILON plus an extra 3 months tax free. The PILON is taxable. I pay at the higher rate.

With the numbers you are citing then £30k will be tax free. Someone getting a lot less including paid notice would be taxed on that. Statutory or enhanced redundancy payments are tax free up to £30k. Your redundancy in isolation must be way over that.

It's not redundancy, it's severance...I believe they are different agreements. I am being paid my salary in lieu of the 12 months notice they would have to give me, which is taxable...it's the 3 months which is tax free. It's 30k if you take redundancy but not severance...so I have been led to believe...

I don’t know your individual circumstance but severance normally is redundancy. The universities seem adverse to the use of the ‘R’ word! I have seen the HR1 form which outlines the number of redundancies, which are labelled under the guise of ‘severance’.
The easiest indicator is whether they are paying you 12 months salary or if you calculation is from the grid using length of service and age.

Docbarty66

I am definitely VS and not VR...my employer has now opened VR and I would be better off had I not signed my VS settlement agreement. It's purely based on my notice period and not my age and length of service.

Cobbler_tone

Docbarty66 said:

I am definitely VS and not VR...my employer has now opened VR and I would be better off had I not signed my VS settlement agreement. It's purely based on my notice period and not my age and length of service.

Gotcha. It would help if all uni’s called it VR as this particular one calls it VS but it is definitely VR.

2nd_time_buyer

Docbarty66 said:

Hi Everyone, there seems to be some great advice on here...and great explanations on the pension minefield. I really can't get my head around it!

Anyway, I am taking VS at the end of April. My severance pay is 15 months' salary, and the taxable element is £81,359.47. I am planning to pay this into the Investment builder part of my USS pension. I know there is a maximum of £60k tax free contribution but hoping through 3 year but hoping I can use previous 3 years' allowance.

I have received a retirement quote from USS which is as follows:

Total Standard Pension - £26,371.32
Investment Builder - £120,015.21 (this includes the £81k above)
MPAVCs - £197,902.17

My option table is as follows:


 I won't take the maximum annual pension, for tax reasons, but deciding between the standard and taking the maximum tax free lump sum is confusing me. I have also been into the modeller and if I take a lower annual pension, I get these options for example:

Annual Pension £29,703
Tax free lump sum £198,019
DC Savings left £120,015

So...if I can live on £29,703 (I'm mortgage free so should be OK) would leaving savings in the Investment Builder be the better option? And when can I take these?

Sorry if this is waffly...for info I'm 58, if that matters. Thank you all so much
Sue

At 66 your state pension will kick in (BTW I'm assuming you are already maxed out on contributions). This will typically be at an age for you where most people might be beginning to reduce retirement expenditure - whereas your income will increase. In your situation, I would be inclined towards the £26.4k pension option to give more flexibility in early years, get a good tax-free lump sum, and by the sounds of it give you sufficient index-linked guaranteed income post 66. 

Docbarty66

Thanks @2nd_time_buyer...you make a great point here!

Jack's_mum

Option on right hand side looks much better to me than the other two! If you leave money in the IB you will have to pay tax on it when you withdraw it later whereas you will get a large tax free amount if you take it all now. You can reinvest it once you receive it in various tax free options such as ISAs and premium bonds. To me it makes no sense to pay unnecessary tax or move from IB to another pension provider. This is a specific feature of the hybrid USS scheme which allows you to take 25% of the total value of the pension as cash free of tax. The higher pension on offer on the RHS option is also likely to be more suitable for you given that it will be almost 10 years before you qualify for the state pension.

Cobbler_tone

Jack's_mum said:

Option on right hand side looks much better to me than the other two! If you leave money in the IB you will have to pay tax on it when you withdraw it later whereas you will get a large tax free amount if you take it all now. You can reinvest it once you receive it in various tax free options such as ISAs and premium bonds. To me it makes no sense to pay unnecessary tax or move from IB to another pension provider. This is a specific feature of the hybrid USS scheme which allows you to take 25% of the total value of the pension as cash free of tax. The higher pension on offer on the RHS option is also likely to be more suitable for you given that it will be almost 10 years before you qualify for the state pension.

You’d pay more tax on the higher pension and still have the option to take a tax free lump sum from the IB. You have to compare the value of extra pension, tax liability etc. Maybe a good way would be to look at what level of annuity it would buy. The total lump sums would be similar.