Common pension jargon:
This is the rate a member builds up benefits in a defined benefit (DB) scheme. For example at USS the accrual rate is 1/85th, the pension is calculated as 1/85 x pensionable salary x time they’re a member at USS.
This is your taxable income, plus the Annual Allowance amount you have used in the tax year, less your pension contributions.
Annual Allowance (AA)
The maximum amount of tax-free pension savings that can be made in a tax year. The standard AA is £60,000. If your savings exceed this amount, a tax charge may be payable which is designed to off-set the tax saving you will have received on your pension contributions.
Purchasing an annuity with your defined contribution (DC) savings (like the Investment Builder) means you’ll buy a regular income for life when you retire. The rate received will depend on a number of things, like the amount of money in your DC pot, market conditions, your age and health, whether or not the income will increase once in payment, and whether a pension will be provided to your dependants when you die.
Money Purchase Annual Allowance (MPAA)
The MPAA applies when you start taking defined contribution savings (like the Investment Builder) in certain ways. The limit is £10,000 per year.
Once triggered, it limits how much you can pay into defined contribution arrangements (like the Investment Builder) before you need to pay tax. It will apply for all future tax years as well as the year in which you triggered it. It’s a HMRC limit designed to stop individuals taking tax-free pension savings out of one scheme and then claiming more tax relief by reinvesting them back into other pension schemes.
If your employer offers salary sacrifice, you can agree to give up the part of your salary that you would pay towards your pension, and your employer will pay your contributions for you. Then, you (and your employer) could pay lower National Insurance contributions.
Uncrystallised funds pension lump sum (UFPLS)
This is one of the flexible ways you can take your defined contribution (DC) savings (like your Investment Builder pot) from age 55*. With UFPLS you can take several cash payments from your DC savings to suit you. The first 25% of each is usually tax-free (subject to HMRC limits).
These are usually called cash payments at USS. You can take up to four cash payments each year from your Investment Builder pot (minimum £2,000 each, unless you are taking your entire pot). There is no charge for cash payments with USS, though there may be tax charges.
*The government has announced they’ll raise this to age 57 in 2028. Depending on where you are in your retirement journey, this could impact how early you can access your USS benefits.