Two USS paths, cannot decide

SVaz

You could drop dead tomorrow,  I’d go now,  assuming no mortgage / kids in Uni leeching off you or anything like that.
Most people would kill for a pension of £24k a year, let alone another half million squirelled away. 

Exam invigilating or marking could bring in a bit of cash and keep you busy for a couple of months a year. 

NTFI19081

Yes, I might have to two days but I know what you mean !

NTFI19081

Hi all,

I’m hoping for a bit of a sanity check because I keep going round in circles on this and would really value some outside perspectives. I got some great advice on DB pensions here recently, which I’ve factored in when maximising tax-free cash.

I’m 56 (57 next year). My main pension is an index-linked DB scheme, plus a fairly chunky DC pot. If I retire, the mortgage gets cleared straight away. I’m not trying to die with the biggest pot possible – especially with pension IHT rules changing from 2027 – and I’m quite relaxed about using money earlier (including helping with house deposits around age 65), with the house itself being the main inheritance. DB + State Pension should cover main expenses from 67.

The decision I’m stuck on is basically this.

Option A – take redundancy and leave main job at 57
I’d leave full-time work next year via redundancy and take the DB straight away at 57, which would be about £24k a year, index-linked. I’d also take around £150k tax-free cash, use part of that to clear the mortgage, and still have just over £100k of tax-free cash left as a buffer. On top of that there’s roughly £280k in DC sitting there as flexible money.

I’ve modelled this pretty conservatively (assuming zero real growth). In practice, I’d expect the gap in the early years to be covered by continuing an additional role until about 61 (0.5-1 days per week_, after which DC bridges the years to state pension. Having the DB in place gives me a secure income floor while doing this, and from state pension age onwards DB + State Pension cover baseline living costs and most care.

What appeals here is the simplicity and getting my time back earlier, with potential to earn more on my own terms in a flexible way outside of the a 'main role' with all that comes with that - and having a secure base to work from.

Option A – expenses

57–60: £43,700 p.a.

60–67: £35,600 p.a.

Option B – stay in my main job until about 60

This would mean carrying on working around 3 days a week for another 3.5 years, in a new role due to restructure - will only take this if the role is OK for me. Assuming I like the role, I’d retire at 60 with an index-linked DB of about £30.5k a year – so roughly £6.5k a year more for life – plus about £19k more tax-free cash. The mortgage would get cleared at 60 instead of 57, and the DC pot ends up broadly similar either way. Under this option the intention is to stop all work completely at 60.

So financially it’s pretty clear what’s going on: I’d be trading a few more years of work for more guaranteed income and a bit more tax-free cash.

One thing worth being clear about is that some additional work features in both options, but in different ways. It’s light, well-paid consultancy-type work rather than anything full-time. Under Option A, the appeal isn’t stopping work but stepping away from institutional diaries altogether – the DB provides a secure floor, which makes it possible to earn flexibly and autonomously, and continue (or stop) as I choose. Under Option B, the additional work is what makes the three-day setup viable, but with a hard stop at 60.

Option B –  expenses

• 57–60: £47,900 p.a. 

• 60–67: £35,600 p.a.

• 67+: £34,500 p.a.

Where I’m torn is this:

• £6.5k a year of extra index-linked DB is obviously valuable and lasts for life

• The extra ~£19k tax-free cash is nice as well.

• Once DB + State Pension are both in payment I’ll be well into higher-rate tax territory anyway, so there’s limited benefit (for me) in maximising pension balances purely to defer tax

• With pension IHT changing from 2027, I’m quite comfortable prioritising resilience and flexibility in my own lifetime rather than preserving everything for later

So I think the real cost of Option B isn’t financial risk, it’s time.

I’ve modelled this pretty hard, and I’m slightly unnerved that the “go now” option actually works as well as it does — especially when staying in my main role just three days a week would add about £6.5k a year of DB and ~£19k of tax-free cash. That’s probably why I’m second-guessing myself.

Interested in how others would think about this.

QrizB

You've not mentioned how much money per year you think you need for the retirement you want to have.

Between the DB, DC and TFC then Option 1 should give you something like £45k pa for the rest of your life. If that's enough to meet your goals then congratulations, you've won the game, you can leave the table.

NTFI19081

QrizB said:

You've not mentioned how much money per year you think you need for the retirement you want to have.

Between the DB, DC and TFC then Option 1 should give you something like £45k pa for the rest of your life. If that's enough to meet your goals then congratulations, you've won the game, you can leave the table.

thanks have added 

Alexland

NTFI19081 said:

I’ve modelled this pretty conservatively (assuming zero real growth). 

I don't know why you are modelling assuming no real growth that seems too conservative. It's currently possible to buy index linked gilts offering above inflation returns (if held to redemption) which can be aligned and built into a bond ladder.

NTFI19081

Alexland said:

NTFI19081 said:

I’ve modelled this pretty conservatively (assuming zero real growth). 

I don't know why you are modelling assuming no real growth that seems too conservative. It's currently possible to buy index linked gilts offering above inflation returns (if held to redemption) which can be aligned and built into a bond ladder.

I suppose to test the worst case, but yes its true I would expect growth which strengthens the dc.

kermchem

You are making the decision about money. Read all the threads on here where recently retired people don’t understand how they used to find the time to work. My 90-year old neighbour has told me to retire and make sure I refuse any consultancy work. Your 60-year old self will congratulate you on stopping at 57. 

Provided … you have enough money to be secure. Don’t work another 3 years just to pay more 40% tax. 

NTFI19081

kermchem said:

You are making the decision about money. Read all the threads on here where recently retired people don’t understand how they used to find the time to work. My 90-year old neighbour has told me to retire and make sure I refuse any consultancy work. Your 60-year old self will congratulate you on stopping at 57. 

Provided … you have enough money to be secure. Don’t work another 3 years just to pay more 40% tax. 

Yes, I have plenty to do. The tax thing has been bugging me as a lot of that 6.5k will be later and eaten by the 40pc with frozen thresholds. 

Alexland

NTFI19081 said:
The tax thing has been bugging me as a lot of that 6.5k will be later and eaten by the 40pc with frozen thresholds. 

On behalf of taxpayers I'd like to thank you for working a few more years for not much benefit.

The frozen thresholds are now a similar disincentive to keep working as the LTA was.