Opt out UK USS pension. Make more sense? « Economics Job Market Rumors

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Opt out UK USS pension. Make more sense?

Economist
5704

This is my fourth year in the UKAP job. Opted in my first year as I thought the extra money back then is worth more that a few cash later on. Got an email from the school today about the agreed pension scheme. 11% of my salary and the school will contribute 23%. Should I opt back in? I am just concerned that this will go bust. But having thought about this, it’s indeed more than double my money.

The problem is that I plan to quit and go home in two years. Still worth it to opt back in?

I was thinking along this line, let’s say on average my salary will be 50k for the next 30 years. I will contribute 5k a year. That’s in total 150k (not adjusting anything).

With the defined benefit scheme. At 65, I will get a lump sum of 3x50k = 150k, then 25k for each year. Let’s assume I can live for 20 more years, that’s another 500k.

Now with 150k invested in S&P for 30 years, if history repeats itself will give at least a 10 times return (from 1992 to 2021, it went up more than 12 folds). So at 65, hopefully I can turn 150k to roughly at least 500k-1000k. At 65, I take out 150k, and then let the rest pay myself some dividend. It’s likely to cover any living expense I need, and I have the flexibility of my liquid cash in the bank.of course, I don’t take into account inflation and taxes here.

Am I missing anything? Yes, I will miss out the 23% extra from my employer, but would I need that anyway? I have a complete control of my money, when and how I need it? Why not opt out?

6 months ago # QUOTE 0 Volod 1 Vlad !
Economist
cbfc

OP DELETED View Post

6 months ago # QUOTE 0 Volod 0 Vlad !
Economist
c493

Thinking along similar lines.

6 months ago # QUOTE 0 Volod 0 Vlad !
Economist
5704

So, I tried to find more information, and come across this:

https://www.uss.co.uk/for-members/youre-a-new-joiner/what-youll-pay

Let’s use their example of Neil, who pays £400 once. He will get back £1200 at 65, then 400 per year for life.

Let’s say Neil is like me, 35, and will live for 50 more years. Instead of paying into USS, Neil buys an S&P index fund, which in average return 8% per year. After 50 years, this initial 400 would turn into more than 18000. So he can pay himself 1200 at 65, and then have roughly 14000 left for his next 20 years, which still work out better than the USS scheme.

I still don’t see the point of this USS. I must miss something?

6 months ago # QUOTE 0 Volod 1 Vlad !
Economist
ff18

It will be paid to administrators. Your argument is right, provided you can be disciplined enough to set aside money to invest.

6 months ago # QUOTE 0 Volod 0 Vlad !
Economist
8f5d

As long as they don’t redefine the plan, it is assured(100%). The SP investments are in expectation. No volatility in pension

So, I tried to find more information, and come across this:
https://www.uss.co.uk/for-members/youre-a-new-joiner/what-youll-pay
Let’s use their example of Neil, who pays £400 once. He will get back £1200 at 65, then 400 per year for life.
Let’s say Neil is like me, 35, and will live for 50 more years. Instead of paying into USS, Neil buys an S&P index fund, which in average return 8% per year. After 50 years, this initial 400 would turn into more than 18000. So he can pay himself 1200 at 65, and then have roughly 14000 left for his next 20 years, which still work out better than the USS scheme.
I still don’t see the point of this USS. I must miss something?

6 months ago # QUOTE 0 Volod 0 Vlad !
Economist
5704

As long as they don’t redefine the plan, it is assured(100%). The SP investments are in expectation. No volatility in pension

So, I tried to find more information, and come across this:
https://www.uss.co.uk/for-members/youre-a-new-joiner/what-youll-pay
Let’s use their example of Neil, who pays £400 once. He will get back £1200 at 65, then 400 per year for life.
Let’s say Neil is like me, 35, and will live for 50 more years. Instead of paying into USS, Neil buys an S&P index fund, which in average return 8% per year. After 50 years, this initial 400 would turn into more than 18000. So he can pay himself 1200 at 65, and then have roughly 14000 left for his next 20 years, which still work out better than the USS scheme.
I still don’t see the point of this USS. I must miss something?

If the S&P won’t do well in 50 years, there must be something horrible that causes its volatility or collapse. At that point, I don’t think it’s a guarantee that the pension pot is still there to pay, would you agree?

6 months ago # QUOTE 1 Volod 0 Vlad !
Economist
cbfc

No one cares, bro.

6 months ago # QUOTE 0 Volod 0 Vlad !
Economist
cc2c

and how are you going to invest into an 'index'. It's always stocks, and are you comfortable having your entire retirement dependent on stock?

6 months ago # QUOTE 0 Volod 0 Vlad !
Economist
cc2c

and going on your own, you forgo 20% of salary; also, don't forget tax considerations. Still sure?

6 months ago # QUOTE 0 Volod 0 Vlad !
Economist
53bf

If you opt out, you need to pay income tax on that 150k, plus taxes on your investment returns (if you go over the ISA limit).

The only way it could be meaningful to opt out is to strike a deal with your school: you opt out (and commit to not opting in again) and they give you a 10% pay raise, so the two sides split the savings on the employer contributions. But there's no credible commitment device and no school would ever agree to that.

6 months ago # QUOTE 0 Volod 0 Vlad !
Economist
5704

If you opt out, you need to pay income tax on that 150k, plus taxes on your investment returns (if you go over the ISA limit).
The only way it could be meaningful to opt out is to strike a deal with your school: you opt out (and commit to not opting in again) and they give you a 10% pay raise, so the two sides split the savings on the employer contributions. But there's no credible commitment device and no school would ever agree to that.

That’s true but you will have to pay tax on pension too, and I don’t know if the 150k lump sum is also taxed. https://www.gov.uk/tax-on-pension/tax-free

Plus, I will live off on the dividends from the money, which attracts a lower tax rate. And yes, if the money is put within the ISA, which is 20k now, I am saved from all of the taxes, including dividend tax. Let’s face it, with an average salary of 50k, how can you fill in the 20k isa threshold? Very much likely you can put these extra 5k in the ISA funding.

To the poster above, yes, I am more confident in the stock market will do well in 30-50 years than in the pension scheme will stay afloat in 50 years. It’s barely functioning now and can be changed. Unless the whole world collapses, I can’t see how the stock market can be worse 50 years in the future. With that much uncertainty, I rather have my cash with me than trust some guys I don’t even know to keep their promises in 35-50 years.

Still, I don’t see the benefit.

6 months ago # QUOTE 0 Volod 0 Vlad !
Economist
ecc3

OP, here's what I think: Stay in the pension plan so you will have a guaranteed base income upon retirement. But don't count on it as your only income. While you are still working, set aside some money to invest. Doesn't need to be stock/S&P although those are fine. Think bitcoin. Something that could counter inflation.

6 months ago # QUOTE 0 Volod 0 Vlad !
Economist
5704

OP, here's what I think: Stay in the pension plan so you will have a guaranteed base income upon retirement. But don't count on it as your only income. While you are still working, set aside some money to invest. Doesn't need to be stock/S&P although those are fine. Think bitcoin. Something that could counter inflation.

I see. I guess this is where diversification of your income creeps in. I don’t see the benefit now, but maybe in the future. I guess it’s not late though. Thanks

6 months ago # QUOTE 0 Volod 0 Vlad !
Economist
76b5

I am moving to the UK, age 50. Seems given how the pensions are calculated, joingn USS is much more attractive for older than for younger people, or am I overlooking something? Besides of this it seems also less of a ponzi scheme if you are retiring a bit sooner. That said, might still need it to pay 40 years after all. What do you think?

4 months ago # QUOTE 0 Volod 0 Vlad !
Economist
cd85

Obviously worth it. Salary sacrifice lets you avoid paying a lot of tax. Factor this in with the large employer contribution, and you're a winner.

4 months ago # QUOTE 0 Volod 0 Vlad !

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Opt out UK USS pension. Make more sense?

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