Two USS paths, cannot decide

NTFI19081

Many thanks @MarlowMallard, I think you have got to the heart of the issue. One thing that has occured to me is that the (nice to have) problem of the DC pot is the frozen tax thresholds. Option 1 is going up with indexing and so the DC pot is going to be heavily taxed as you say. The only solution to this appears to be to withdraw more earlier and stuff ISA's. Taking the max tax free cash at retirement is another option in one go as with the extra 3.66% option - but then I need somewhere to shelter such a large sum from tax.

So either way I think i need a strategy for getting the DC money out as efficiently as possible and have 10 years to do it. What I cannot work out is if the frozen tax thresholds (and indeed IHT changes from 2027, as I plan to gift in regulary from 63-64) actually make option 2 the preferable option now. Also the frozen tax free limit is being eroded by inflation. However, I am a little wary of starting DC draw as I am 'only' 57.

Universidad

One thing to note is that you're not guaranteed the ERF-free uplift at 60. While I understand that it's unlikely your employer would refuse, in practice there are various ways your hand could be forced on leaving in the next few years. I don't think that's likely, but it would gnaw at me for a few years if the only reason I was staying on was dependent on some factors outside of my control.

LHW99

Have you looked at going 2 years early reather than 4? (Compromise candidate )

MarlowMallard

LHW99 said:

Have you looked at going 2 years early reather than 4? (Compromise candidate )

This isn't so good because there's a cliff-edge on the ERF's at 60.  You have to be still an active member at 60 to avoid the ERF on pre-2011 benefits, so retiring at 58 and deferring pension to 60 doesn't avoid the ERF. 
 
Maybe better to flexi-retire, drop hours and maybe take 30% of DB pension now, spend the TFLS to cover income drop, this doesn't trigger MPAA, then go at 60 and take the rest.  Or just take some TFLS out of the DC pot and leave DB to 60.  

NTFI19081

Yes, its either go now (redundancy - all the money is in the figs I gave) or reduce hours but must not leave before 60, also as @Universidad says there is the risk I cannnot go at 60 with no ERF reduction on pre 2011 accrual. Flexi retire I think does not help with the ERFs - I could manage without taking USS on 2 or 3 days anyway. If go I may as well take the USS DB as the break even point v waiting till 60 is 70 odd. Chat GPT has run the numbers and tells me I need to drain the DC pot to ISAs and before hitting HR tax at 67 when state pension arrives - and that going makes that easier. God its complicated !

NTFI19081

Also this is interests me, but its a lot of tax free cash with nowhere to shelter it once the ISA allowance is used: You can however take an extra 3.66x pension out of the DC pot to make the TFLS up to 6.66x pension, only at the point you trigger the DB pension. 

MarlowMallard

NTFI19081 said:

Also this is interests me, but its a lot of tax free cash with nowhere to shelter it once the ISA allowance is used: You can however take an extra 3.66x pension out of the DC pot to make the TFLS up to 6.66x pension, only at the point you trigger the DB pension. 

Yes it takes a while to feed it into ISAs, but you can stick £50k into Premium Bonds or do a gilt ladder etc.  Anyway, if you get out an extra say £90k TFC and stick it in a building society,  yes you get 4% and pay £720 pa in tax on that for a few years, that's peanuts compared with paying 20% on the whole £90k .  

NTFI19081

Absolutely, the power of the combined tax free element of USS is a no brainer for me as I am trying to deplete the DC pots to ISAs. I had not realised quite how much extra it offers in my situation where I need to deplete the DC to ISAs before 67 or pay HR tax on DC. 

MarlowMallard

NTFI19081 said:

Absolutely, the power of the combined tax free element of USS is a no brainer for me as I am trying to deplete the DC pots to ISAs. I had not realised quite how much extra it offers in my situation where I need to deplete the DC to ISAs before 67 or pay HR tax on DC. 

Another option is, if you go now with £24k standard pension, you can reverse-commute the £72k lump into c. £3k extra pension, so £27k. You can then take the entire 6.66x £27k  i.e. £180k tax-free out of the DC at the same time.   The remaining DC will still be 25% tax-free. 
(That's the most tax-free you can get, because you can't reverse-commute DC into extra pension, you can only do this to the 3x in the DB).  

Similar at age 60 with bigger numbers. 

swindiff

Could you afford to go down to 1 day a week?  Keeping you on the employers books until 60.  Maybe even agreeing to a sabbatical in the last year?  I am 55, and going before I am 60 would just annoy me.  That cliff edge is a bu66er.