USS - Newbie needing help!

Barralad77

I’m in a similar position (at least, I will be soon) and the way I compare is as follows (comparing middle - ‘SO’ - with the right - ‘MTF’).

Assume IB is drawn down piecemeal so it’s only ever subject to 20% tax (which yields a net tax rate of 15% as a quarter is tax free).
Also, put aside any estimates of how much the IB will grow (as that’s a guessing game).

[Here’s hoping my maths is correct…..]

What is the net value of the cash?
SO = 175,808 + (221,222 x 0.85) > £363,846
MTF > £225,659

Difference in cash = £138,187

Difference in pension =:
- £7,478 (gross)
- £5,982 (net, assuming tax at 20%).

Meaning the extra annual net pension of £5,982 has ‘cost’ £138,187.

That’s equivalent to a return (e.g., interest) of around 4.3%.

A return of 4.3% (index linked, of course) might be worth considering (it’s ‘safer’ than leaving the money in the IB).

There are other options (of how to use the money - see previous post) but this is always my starting point when trying to work out whether the reverse commutation is good value or not.

If I were to imagine myself in your position I would be asking myself what I would do with a very large cash sum (£175,000 is large, never mind £225,000). Whichever amount you have, could you do something with it that would give you a return of more than 4% (net of any tax) and where that return rises in line with inflation each year? 

Docbarty66

Jack's_mum @Cobbler_tone @Barralad77...I really appreciate your continued support and advice on this. I am still a little flummoxed. I am tempted now to leave my MPAVCs in the Investment Builder...this is what I would get if I do:

Pension £27,139
Lump Sum tax free £180,925
PLUS I keep the MPAVCs in the IB currently at £197902

It seems that the MPAVCs can either be converted to the retirement income builder (which is what raised the pension up to around £33k) or I can go with Flexi- draw down and take 25% tax free and then the rest can be spread over however many years I want.  It seems that the extra 6k or so per year from maxing out the tax free element is essentially spreading my MPAVCs out until I am 99! I doubt I will live that long, nor will I need that amount of money. I am tempted to do flexi draw down for the next 10-12 years so I will get tax free amount of around £50 and additional taxable income of £18k a year until I draw my pension at 67. My income will drop then by around 6k (given current values) but is probably not going to change my life.

Am I reading all this wrong?? I may actually be trying to do something which isn't permissible. 

Cobbler_tone

That makes sense to me, although I’m not an expert on the investment builder. I assumed it was a DC pension with flexible options, although maybe not as flexible as some. 

I would imagine most people would want to boost their income when they can most enjoy it. Especially with state pension kicking in later on. 

You’ve certainly got some attractive options.

gwt1965

@Docbarty66

Just remember USS doesn’t offer flexi-access drawdown only UFPLS. 

Docbarty66

gwt1965 said:

@Docbarty66

Just remember USS doesn’t offer flexi-access drawdown only UFPLS. 

Really? Oh! It is an option on My USS when looking at my options. I am sure you're right though. I will ring them tomorrow and find out. Thank you

Edit: You are right...looks like I will need to transfer to a SIPP. Now that's another round of question and queries...!