If you are currently paying into USS, you are able to improve your benefits by making extra contributions, called AVCs (Additional Voluntary Contributions), or by transferring benefits into USS from other pension arrangements that you may have.
There are limits set by HMRC on the maximum amount you can build up in a pension each year, called the Annual Allowance and on the amount of your benefits at retirement. These limits generally affect those members with high levels of service and generally speaking higher levels of salary. You should read the Limits to tax relief and tax-free benefits factsheet before committing to additional contributions.
Want to save more towards your pension?
If you think you need to save more, then USS can help. Of course, we should remind you that there are many other options for saving.
For example, you could pay into another pension scheme as well as USS (as long as your total contributions don’t exceed 100% of your earnings and the Annual Allowance), or look into a vast range of other non-pension forms of saving and investment.
The big attraction of AVCs is tax relief. You will receive tax relief at either 20% or 40% (on any earnings subject to higher-rate tax) on these extra payments.
If you’re not sure, you should seek financial advice. Please click here to view a list of financial advisers living locally to you.
Full information on the AVC options can be found in the factsheet ‘Increasing your benefits by paying Additional Voluntary Contributions’ and you can also speak with the pensions contact at your institution for more information and help.
If you want to save more with USS there are two different ways you could do this.
- Buy extra benefits (pension and tax-free cash) in USS (called the Revalued Benefits AVC) by regular or lump sum contributions:
- Pay up to an extra 15% of your annual salary into this AVC
- Extra pension and tax-free cash for you at retirement at a fixed cost
- If you are interested contact the pensions contact at your institution to begin your contributions, once you have decided how much extra pension you want to buy.
2. Pay into the Money Purchase AVC (Prudential) by regular or lump sum contributions. This is an investment-based facility but you have the choice of where your money is invested:
- Pay a large proportion of your available earnings into this AVC (subject to the limits described below)
- You choose where the money is invested and therefore the level of risk
- Option to take all the fund as tax-free cash at retirement (subject to an overall limit)
Find out how you can keep your maximum yearly pension and have an additional tax free cash lump sum visit www.pru.co.uk/usstools
- Option to buy a pension (called an annuity) with the fund, from Prudential, another provider or from USS when you retire (see the Prudential conversion tool).
- Flexible so that you can reduce or have breaks in your contributions
- Please note that for new MPAVC accounts an exit charge applies to your MPAVC fund value should you withdraw those funds due to retirement, within 5 years of your first contribution. Full details are available from Prudential.
If you want more information about the money purchase AVC give Prudential a call on:
Tel: 0800 515 914 (existing members call the customer call centre on 0845 600 0343)
Or complete a Money purchase AVC information enquiry form which will arrive directly at Prudential once completed and submitted.
If you get the opportunity at your institution take up the offer of a face-to-face meeting with a Prudential representative. Speak to your pensions contact to see if this is an option.
Alternatively, visit the Prudential website here where you can view the latest investment fund reports.
Money Purchase AVC exit charge
For new accounts, where first contributions were received by Prudential after 19 August 2012, if the fund is withdrawn early it will be subject to an early exit charge in certain situations.
The table below shows the level of exit charges that may apply.
|Year of withdrawal
|During Year 1
|During Year 2
|During Year 3
|During Year 4
|During Year 5
|During Year 6 and onwards
Charges may vary in the future and may be higher than they are now.
Please note: The exit charge will be applied after any Market Value Reduction has been applied to any disinvestment from the With-Profits Fund.
In what situations will the exit charge apply?
The main situations where an exit charge will apply are:
- Having left USS a member transfers benefits to an alternative pension arrangement, including an alternative AVC
- Retirements at any date with the exception of where benefits are being taken on the grounds of ill health
- Where you take a short service refund from your scheme and AVC; and the value of your AVC fund (after charges) is greater than the value of the contributions paid
When will an exit charge not apply?
An exit charge will not apply if any moneys are withdrawn due to:
- Switches between investment funds
- Retirement on the grounds of ill health
- Claims on the grounds of serious ill health
- If a member takes a flexible retirement, draws their MPAVC fund at that point and then opens a new MPAVC, this new MPAVC will not be treated as a new account, so long as the new MPAVC is opened within 31 days of the flexible retirement event. Therefore, the 5 years will count from when the original account was opened
- Pension sharing on divorce
Maximum contribution to USS Money Purchase AVCs
USS does set a limit on how much you can pay in total each year as gross contributions (before tax relief) in to the Money Purchase AVC. The limit is the Annual Allowance for the year, which is currently £50,000 (reducing to £40,000 from April 2014), or your annual salary if lower.
So, if your salary were £85,000 pa you would be able to pay up to £50,000 pa as gross contributions to the USS Money Purchase AVC during the year. If your salary were £30,000 pa, then you could pay up to £30,000 pa to the Money Purchase AVC (of course you would have to ensure all other statutory/employer deductions are paid) during the year.
Please refer to the ‘Key Features’ document, available on request from Prudential or online at www.pru.co.uk/uss.
HM Revenue & Customs (HMRC) introduced a new tax system for pension schemes from April 2011. The new system creates 'allowances' for the maximum pension benefits that members can accrue in a tax preferential way.
There are two different allowances:
- The Lifetime Allowance (LTA)
- The Annual Allowance (AA)
These allowances are relatively high and generally affect members with higher than average salaries and long service in the scheme. But, under this tax system, members can pay into the USS AVC arrangements or an alternative arrangement outside USS.
However, the maximum annual benefit accrual (growth in the value of your benefits in one year) is subject to a maximum that can attract tax relief, this being the Annual Allowance.
If your annual benefit accrual or final retirement benefits exceed either the AA or LTA then a tax charge is made to the excess value. Full details are available from the limits to tax relief and tax-free benefits factsheet.
For a member of the Career Revalued Benefits section to exceed the Annual Allowance in any particular year you would need to build up a pension of £50,000/19 = £2,631.58 pa, you’d need a full year of service and a salary of £210,526 to get that amount of pension in one year. You do however need to include in the Annual Allowance calculation the amount of any AVCs paid.
How does the Revalued benefits AVC affect the Annual Allowance?
If you buy extra pension by lump sum, the full amount of benefit being purchased will be added to the 'closing value' in the Annual Allowance calculation.
If you decide to buy an additional pension of £1,000pa by monthly contributions you are actually buying that additional pension gradually each year. So, if you were buying the pension over 10 years, each year you would be buying £100, so the AA calculation would increase by:-
19 X £100 = £1,900
How does a Money Purchase AVC affect the Annual Allowance?
This is very easy to work out. The gross amount deducted from your pay (before tax relief) is the value you add in to the Annual Allowance calculation.
So, using the example above, where the Annual Allowance used up was £13,585 (before any AVCs paid), if you had paid £10,000 over the year into Money Purchase AVCs, then the amount of the Annual Allowance used up would now be £23,585.00.
So, it’s much easier to work out how much you can pay in to the Money Purchase AVC and stay within the Annual Allowance limit.
Access your money purchase account online:
Click here to be taken to the Prudential website.
USS members have access to:
- Fund values
- View individual contribution/plan records
- Switch funds
- Redirect contributions
- Change Personal details
Transfer benefits in to USS
You could increase the amount of service you have in USS by making a transfer into the scheme from a previous pension arrangement. Please refer to the section on Transferring-in benefits for detailed information on this option.