Commutation or not??

Discussion in 'Finance & Pensions' started by thirsty sailor, Feb 16, 2015.

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  1. Apologies if this has been done to death but is it worth using our commutation or is it better to have a larger pension each month? Pro's & Cons of both please if you dont mind.

    Way I see it is the crown offer an extra £13,672 in my case at 40 but my EDP drops from £10,571 to £7,395. Over 15 years that is £47,640. You get an additional lump of £23,479 at 68 Years old but come on that is quite a change.

    Seems like a small additional lump sum if you take commutation compared to the extra £3176 a year in the Pension/EDP @ exit.
     
  2. Just to clarify, I understand from what you have said that you are transferring to AFPS 15 and leaving at the new EDP point which is at at least age 40 with at least 20 years service. The scheme doesn't come in until 1 April 2015 and the EDP + deferred pension will only be on service after that date.

    I am guessing that you are reasonably near the EDP point as you are looking at the options now. The figures you have given seem rather large for someone who will have had a short period on the scheme. You need to double check what you have got from the calculator. If you are an FPS member send them to pension [email protected] and they will be checked for you.

    The idea of giving up the tax free EDP lump sum to improve your taxable EDP income has to be considered against the value of money in the hand when compared to money promised which you might not live to draw. A Financial Advisor would talk to you about possible yields from other savings arrangements which could give you extra income and protect your capital.

    If you haven't booked a Financial Aspects of Resettlement briefing yet, it might be an idea to do so. The first part is about your pension, tax, commutation etc (delivered for MOD by the Forces Pension Society) and the second part is delivered by a financial advisor who talks about exactly this sort of thing. If you are interested, contact your local Resettlement Office and book through CTP. These briefings are delivered at a number of venues.
     
  3. Im currently on the 75 scheme and will cross over to the 15 scheme in April when we are all forced across. Not near my EDP point yet due out in 2021 but looking into it all now to plan ahead as it is only 6 years away and a house remortgage etc is on the cards so I would like to know what lump I will walk away with.

    All figures above are from a new calculation carried out this morning. Appreciate you replying my sceptical view is why accept a small top up lump sum (£13,672) to lose £3176 a year. I know there is a second lump at 68 but Id rather take my chance on the additional £3176 annually than try and make it to 68 years old.

    Unless of course there is a Tax reason that sways the additional top up in my favour? Of course the extra £13,672 off the mortgage will reduce the length of the mortgage etc as well so Im all ears but interested in the general rule of thumb?

    In my experience those I have seen leaving commute as much as possible, my interest is why is this?
     
  4. Back in the days of high interest rates it worked out as a 5% loan over 15 years, so it was better to take the max and "invest" at a higher rate. these days with lower interest rates its a little less clear what to do. Its all a gamble do you "need" the cash?
     
  5. But that was a different sort of commutation. In AFPS 75 you could 'buy' an extra lump sum and pay for it from your pre-tax pension. That could well work out for those considering it. What AFPS 15 is offering is the opposite in that instead of offering money now and pay for it as you go, it offers you the chance to give up your tax free EDP lump sum to gain extra income. Speak to a financial advisor!
     
    • Like Like x 1
  6. And sue the bastard when/if he gets it wrong.
     
  7. I would think "short term" because they will probably change the rules a few years down the line so most blokes will dip out. So i would take the maximum money and run. That said I left in 89 commuted the maximum, invested the cash and it now pays me a small amount each month, supplements my pussers and state pensions. The surprising thing is that I also have a Post Office pension. Worked out by the years served in the mob / worked for the Post Office. Pussers works out the smaller of the two.
     
  8. Hello mate, im in a similar situation to you. From what i understand you do not get the £3K extra if you decide not the take the lump sum it is instead of the original 2k(ish) amount originally stated. In my case if i do not decide to take the lump sum of £15,187 then i will get an extra £879 a month in my pension.
     
  9. Hendo I dont understand what you mean. In my case I can commute an additional
    £13,672 at 40 but my EDP will then drop from £10,571 to £7,395. Over 15 years that is £47,640. Im entitled to an additional lump of £23,479 at 68 Years old.

    Seems like a small additional lump sum if you take commutation compared to the extra £3176 a year in the Pension/EDP @ exit. My thinking is 28 years of £3176 Vs £13,672 with a top up of £23,479 @68

    In real terms thats £88,928 Vs £37,151 seems to me to be a no brainer and take the higher EDP and DO NOT commute.. I can see the view of what if you dont live to 68 but with an extra £3176 a year if I dont live to 68 years old it will only take 4 years approx until I have broken even with the lump I would have commuted!
     
  10. The drop is only till you are 55 it then gets linked (mine jumped 2.5x others have reported about 2x)

    Think of it as a 5% loan over 15 years.

    Or it was in my day(Im 58)
     

  11. Part of the above post is about the AFPS 15 EDP which is why the pension comes in at 68.

    For AFPS 75 resettlement commutation you are, in effect, taking a loan repayable from your pre-tax pension in the period between the date you leave and age 55. At age 55 the pension is restored to its original value and picks up the CPI increases (on the original level of pension) which have occurred since you left the mob. The pension then goes up each year from age 55 to reflect CPI.

    If you haven't applied for a FAR briefing - where this is covered - it is a good idea to do so. See your Resettlement staff. Further, I am writing an article for June's Pathfinder Magazine on AFPS 75 commutation - this magazine is available on line or at the Resettlement Office.
     
  12. My 2p.

    I came out in 93 after 22+ years and did full commutation.

    We already had a house, (no kids) but the cash allowed a full reform, new windows, new bathroom and kitchen and a new car - then all I had to do was make it to 55 to see off Pusser! I also had a new job doing my old job (more or less) in RN support.

    Managed to retire to the sun aged 50 = happy days.


    I'd say commute, but only you can decide.
     
  13. I left medically and couldn't commute

    If I had the option I would have because it's all about now and not in 20 odd years time and if you have debts I guess it all helps now
     

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