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Commute my pension or not?

BradyBunch

Midshipman
anyone recently left after 22 years able to offer some guidance on how this works?
Have completed 21 years (have 5 years EC) but considering leaving as just sick and tired of being a weekend warrior.

I have run through various scenarios on the Pension Calculator AND have completed the 'Form 12' (i think) to get a more detailed analysis. I also intend to sign up to the Pension Society once the chit is in.

but anyone able to give an idea how it works?
When do you get your lump sum?
when does the pension start?
(after last day in the mob)

ta
 

cjg375

Lantern Swinger
It really all depends on your personal situation. I left just over a year ago and fully commuted my 75 pension. This gives a nice additional lump sum which is tax free. Your monthly pension will be subject to tax. You need to ask yourself a few questions.

  • Do you need the additional lump sum in cash? To clear a mortgage or something?
  • Do you anticipate getting a job after leaving which will put you anywhere near the 40% tax bracket? If so then all or some of your pension will be taxed at 40% effectively. By commuting you’ll reduce the amount paid by getting it tax free in your lump sum.
  • Do you anticipate a lower paid job where your monthly pension will be used to help with normal cost of living?
Depending on where you fall with these will push you to commute or not. I did because we didn’t need the extra money monthly, my new pay was at the 41% (Scotland) tax bracket and we are now mortgage free with substantial savings.

The calculation is pretty simple and is something like they will increase your lump sum to the amount you could have got if you’d completed 37 years and reduce your annual pension by an amount to compensate. The reduction lasts between the date you get your pension and your 55th birthday when it returns to the pre commute value plus index linking for cost of CPI increases for all that time. The FPS bods will be able to give more and better detail.

Best advice to give is, once you have submitted your notice, get on a Financial Aspects of Resettlement course through the resettlement bods and they will explain all this and more over the course of a day.

As Drakey says you get your pension monthly in arrears so there is no gap between your final salary one month and first pension payment the next. Lump sum has 28 days but often comes sooner. I think how quick can depend on when in the month you leave as they need to wait for data to come through in order to calculate part of your pension and lump sum.
 

SONAR-BENDER

War Hero
Ultimately, it is your decision, based on your needs and circumstances. I did commute, mortgage paid off, new house done up a few buckshee quid coming in every month - that went into a separate account and was used for holidays etc.

Then all you need to do is hang on in there until you're 55! ;)
 
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