USS Tax Free Income Builder and Investment Builder Lump Sum

midsummergirl

I am so confused as being able to do the above sounds too good to be true and why would you not? I asked USS and they confirmed this was possible but today I spoke to PensionWise who thought it is unlikely to be the case and only 25% of Investment Builder would be tax free. USS website says : 'If you take your Retirement Income Builder Savings and Investment Builder savings together then you may be able to take all as part of your tax free lump sum when you retire."

I took voluntary redundancy last year and am planning to retire at around 64 in about a years time - My income builder is about £4k per year with a tax free lump sum of around £12k and I've saved £23k in Investment Builder. There was something about this on a thread about a year ago but I found that very technical. I just want to know - can I really have this tax free? Or would I be better to take 25% tax free?

kermchem

The HMRC rules are that you can take 25% of the value of your pension tax free. In the case of USS this value is given by your annual pension x 20 plus your tax free lump sum which is 3 x that pension, plus your investment builder. In reality, unless you have a huge investment builder compared to income builder, yes you can take the IB tax free.

retiringin26

The illustrative calculator on MyUSS has a slider control that shows how much you can adjust the tax free amount from 0 to the max available under HMRC rules and the ability to add or subtract from the annual pension.

Barralad77

Using the numbers you’ve provided I don’t think you can take everything (£35,000) tax free. If we use the 25% calculation provided by @kermchem then we get [ (£4k x 23) + £23k) / 4] = £28,750. If we use an alternative means of calculating the figure (annuity x 6.67) the figure is around £26,700. Either way, it’s not quite £35,000. But if the latter figure is correct, you would be left with around £8,300 in the IB and when taken out you would pay a net tax rate of 15%*, meaning you would pay only around £1,250 in tax.

*this assumes you will be a lower-rate tax payer at that point.

af1963

https://forums.moneysavingexpert.com/discussion/comment/81873979#Comment_81873979

… and if you have some time before state pension begins, during which your taxable income will only be the 4K mentioned, you would have 8.5K of remaining tax allowance each year, allowing you to withdraw as taxable income but end up paying no tax on it.

DRS1

Someone has mentioned that you can take some of the Income Builder lump sum as pension (reverse commutation) and then fill the gap with more lump sum from the Investment Builder. So you could use up all the Investment Builder as tax free lump sum and get a higher pension. It is in the very long USS thread somewhere but good luck finding it.

MarlowMallard

https://forums.moneysavingexpert.com/discussion/comment/81873979#Comment_81873979

I think both the £28,750 and £26,700 are "right". If you take the £26,700 then the remaining £8k left in IB is uncrystallised and you can take 25% of it tax-free later on. If you take the £28,750, that is taking the 25% of the 8k at the same time, and the remaining 6k is crystallised and all income-taxable. So much of a muchness.

midsummergirl

Thank you so much everbody. I I've asked for a quote and will put the figures into the tax calculator. I think it won't be a ridiculous amount of tax to pay anyway as although I do have another small pension and earnings of around £3k per annum it wouldn't push me anywhere near the £40k higher rate band. All this has been very helpful.

retiringin26

That's right @DRS1 , so long as the DC pot is used at the time when the DB benefits are placed into payment.. and that's what the online calculator on MyUSS attempts to estimate.