Commutation factor

Worried_of_wakefield

Hello everyone, just spent an interesting morning reading recent posts on the above subject. I have a Defined Benifit pension ( defered) due for collection at age 65, approx 3 1/2 year from now. I'm being quoted £25.3K full pension or alternatively £15.4K + £102.5K LS.

Am I correct in thinking this is a commutation factor of less than 11 and that would be deemed to be poor?

My health is extreemly good, I have no debts and other than buying new golf clubs and booking a cruise I dont really need the LS immediatly, if I add the state pension ( age 66) to the full pension offered, this still keeps me within the standard tax band.

If I am correct in my understanding on the subject the LS option appears less attractive the more I read.

Expert opinion or a maths lesson gratefully accepted

jem16

Worried_of_wakefield wrote: »

Am I correct in thinking this is a commutation factor of less than 11 and that would be deemed to be poor?

Would normally be considered as dire.

My health is extreemly good, I have no debts and other than buying new golf clubs and booking a cruise I dont really need the LS immediatly, if I add the state pension ( age 66) to the full pension offered, this still keeps me within the standard tax band.

If I am correct in my understanding on the subject the LS option appears less attractive the more I read.

Expert opinion or a maths lesson gratefully accepted

Unless you have a specific need for the cash, then the pension is going to be better.

ischofie1

I would say very dire at less than 11.
I converted a DB with a commutation factor of 26 & even then, did so after much deliberation. At a factor of less than 11 I wouldn't have even consider it.

xylophone

I make that a commutation factor of around 10.3 - when you consider that other posters have commented that the CF of eg the Civil Service scheme (12) is dire and that a relative of mine with a DB pension had a CF of over 20.......

You say that you have no need for a lump sum and imply that you are likely to have an average life span - this would see you into your mid eighties.

You would be giving up nearly £10,000 a year of pension with associated index linking.

This seems to me a poor bet.

PensionTech

Agreed, it looks rubbish.

Just a note on this though:

I converted a DB with a commutation factor of 26 & even then, did so after much deliberation.

Age is a factor here. Your commutation factor will be lower as you get older. I'd be truly surprised if 26 was the factor at age 65, so it's probably not directly comparable with the OP's situation. It also depends on all sorts of scheme-specific elements - schemes that provide more generous increases in payment will provide higher commutation factors, schemes for more well-paying jobs will tend to assume higher than average life expectancy and therefore higher factors, etc. That said, 26 is better than anything I've seen at pretty much any age or scheme design except a few PPA cases where members could retire before 55. Lucky!

GunJack

your lot's maths is carp, it's 12.975

PensionTech

your lot's maths is carp, it's 12.975

Er. What?

£25.3k - £15.4k = £9.9k

£102.5k / £9.9k = 10.354.

Carp = various species of oily freshwater fish from the family Cyprinidae, a very large group of fish native to Europe and Asia.

jamesd

Yes, the commutation factor looks poor and even more so for a person who seems likely to have a longer than normal life expectancy, who can be expected to lose more over their lifetime as a result.

GunJack

PensionTech wrote: »

Er. What?

£25.3k - £15.4k = £9.9k

£102.5k / £9.9k = 10.354.

Carp = various species of oily freshwater fish from the family Cyprinidae, a very large group of fish native to Europe and Asia.

Oops!!! glancing at it I thought it was 23.5

ok, I'm a numpty

p.s. that's worse than the CS's 12:1

Worried_of_wakefield

Thanks all, looks like the cruise is off the menu!

Now this may seem very naive but I'm sure I've read posts where in certain cases the pension provider has offered an 'en-hanced' LS in order to reduce thier future liabilities. Given that I intend to live to at least 112:j ,would making them aware of this new information encourage them to 'up the anti'?

xylophone

But what is the point of worrying about their upping the ante if you do not need a lump sum?

And the longer you live, the less likely it is that taking a lump sum would be to your benefit?

Incidentally, have you checked your new state pension starting amount?