Pension flex - thoughts please

Daisy_Chaine

Hello - newbie here, very confused and a feeling bit silly as I feel I should be able to get my head around this!

I'm approaching my 63rd birthday, and have been a USS member since the early 2000s, at which point I transferred in around 15 years' worth from SAUL.  While I expect to fully retire around age 65-66, at this point I would like to reduce my hours.

As I understand it the majority (maybe 60%-80%) of my USS pension has an NPA of 60 - based on years of membership. USS haven't been especially helpful with the proportions, and I'm not confident enough of my workings-out to be sure of amounts of money. The rest is age 65, with a tiny proportion having age 66.  Nearly all of it is in the DB section.

While I could probably cope on less income, I'm not keen to do that just now, and would like to continue on more or less the same income as I have now.

Without accessing any pension, I think that reducing my hours by 20% will leave me around £5,600 short of my current take home pay - and I wouldn't have the option of taking pension at a later date unless I reduce hours further. If I take 20% of the pension to supplement income, that still leaves me £2,600 short, which is perfectly doable but still less than I'd ideally like (those figures were based on a quote from USS last year).

I'm lucky in that I do have savings (currently earning around 4% interest) that I could draw on to make up the difference, either with or without the bit of pension - but if I don't take the pension at the same time as reducing my hours, under USS rules I can't opt to do that later.

I've been in this loop of wondering how to do this for at least a couple of years, not confident enough of my workings out and understanding to take the plunge.  I suspect that the amount I'd lose by taking 20-25% of pension early isn't enough to worry about, but there might be other things to take into account, like the effect of 2+ years of reduced contributions. I'd also prefer to leave the lump sum alone, but there isn't an option not to take the same proportion of that, if taking some of the income pension. 

Whether I make up the shortfall from savings or pension might just come down to which is performing better (?), but I really have no idea how to work it out and would be incredibly grateful for views on which is the best way to do it.  

TIA for thoughts on the pros and cons either way.

Triumph13

I would suggest that you start by looking at your total pension income from state pension age, then work backwards from there, rather than starting from your current full time salary.

Your first question therefore is, depending on when you stop working / access your USS pension, how much income would you have at that point and is it enough?  If you feel it isn't enough, even if you work right through to state pension age (SPA), then early retirement is a non-starter and you need to look to cut expenses and/or increase income.  Hopefully that isn't the case!

If you do have some slack in your projected income at SPA, then you can start modelling your different options.  In a perfect world, you'd have enough slack that you could retire tomorrow, using the lump sum and DC sections to bridge the missing years of state pension.  If that's the case, then you are laughing.  If not, then you need to play with the options to see how much longer you need to keep working, how much you can afford to reduce your hours and, possibly, how much you need to cut your current spending to still end up with an acceptable income level at SPA.