Armed Forces Pension Scheme - Commutation vs Non Commutation

Mrs_Kipling

I've been viewing this website for a long time now and at last plucked up the courage to join and post, so please be gentle with me.

My hubbie is due to leave the Forces next year and is entitled to receive his pension immediately due to the number of years served. In addition to his gratuity, he can choose to commute a further lump sum but this will reduce his annual pension by £1700 per year for 13 years (until he reaches 55).

When it is simply worked out, to commute the additional amount of £13,402 will cost him £23,232 in the long run, a loss of nearly £10,000. However we need to work out what the total loss would be taking into account the following factors:

if we use that money to pay off our mortgage (though can't pay off a lump sum until July 05 - I'll have to confirm the date and current fixed rate !) (we are intending to use the whole gratuity to pay off the majority of our mortgage)

the effects of inflation on the £1700 (though I am aware this is pure guesswork)

tax liability (basic rate) (tax would only be payable on the £1700 if paid annually as a pension), taken as a lump sum, no tax would be due

This sounds really daunting to work out, I could maybe manage to work out the tax (at a push) but not the rest so any help you could give would be very much appreciated.

Thanks.

:xmassign: