Additional Pension purchase and lump sum

nad1611

I have looked at this site for an answer but can't quite understand what this means
http://www.nhsbsa.nhs.uk/1289.aspx
Q.Will AP increase my retirement lump sum?


A. No, but if you choose to give up some of your pension to provide a lump sum you can include your AP in the pension you give up.


Now I know that you can maximise your lump sum by giving up some pension. Might seem a bit dense but I'm not sure what this means. Does it mean you can add the Additional Pension to the current pension to increase your lump sum ? Sorry if it's a bit muddled.

jem16

nad1611 wrote: »

Now I know that you can maximise your lump sum by giving up some pension. Might seem a bit dense but I'm not sure what this means. Does it mean you can add the Additional Pension to the current pension to increase your lump sum ? Sorry if it's a bit muddled.

I would imagine that it means if you had a pension of £20k and AP of £5k and then chose to commute £5k of pension to provide £60k lump sum, you could use the AP to pay for that.

I assume it also means that your lump sum is calculated from the £20k pension pot as opposed to a £25k ( £20k + £5k) pension pot.

nad1611

Thanks. If I could just add that the pensions automatic lump sum is about 3 times the pension so in your illustration that would be £20,000 * 3=£60,000. To maximise the lump sum it is the pension * 5.36, giving up £1 of pension for every £12 of lump sum.

Could you take those figures and apply your thinking to that? Taking the AP of £5000.

jem16

nad1611 wrote: »

Thanks. If I could just add that the pensions automatic lump sum is about 3 times the pension so in your illustration that would be £20,000 * 3=£60,000. To maximise the lump sum it is the pension * 5.36, giving up £1 of pension for every £12 of lump sum.

Could you take those figures and apply your thinking to that? Taking the AP of £5000.

So £20k * 5.36 is £107,200. Your automatic lump sum is £60k so you can have an extra £47,200 lump sum. Divide that by 12 and you get £3933.33 so that's the amount of pension you would need to give up. You can therefore use that £5k additional pension to pay for it.

Main question would be why you would want to give up pension for such a dire commutation rate?

nad1611

Thanks again. We haven't made any decisions yet, just simply wanted to have al the facts and what the options were and to make sure we clearly understood what meant what.

As you say a poor commutation rate but we'll have a mortgage to pay off about the same time so we might use it for that.

Thanks again for your explaination.