Commutation factor

kidmugsy

jimi_man wrote: »

Out of interest isn't that exactly the same as taking a lump sum from a pension? You are effectively borrowing from your pension and then paying it back over the rest of your life, just at a slightly worse interest rate than a mortgage and with no set term.

Your extra pension runs until death so it's longevity insurance; it needs no management so it's dementia insurance. You know its (inflation protected) rate of return whereas your mortgage interest rate could climb alarmingly. So "slightly worse interest rate" may be madly optimistic.

jimi_man

kidmugsy wrote: »

Your extra pension runs until death so it's longevity insurance; it needs no management so it's dementia insurance. You know its (inflation protected) rate of return whereas your mortgage interest rate could climb alarmingly. So "slightly worse interest rate" may be madly optimistic.

Yes I agree. You're preaching to the converted really. I work in a public service where 99% of people take it so I'm considered an oddity for not doing so. I just want to make sure I've considered everything.

Apologies OP for hijacking, back to the thread.

jamesd

jimi_man wrote: »

Out of interest isn't that exactly the same as taking a lump sum from a pension? You are effectively borrowing from your pension and then paying it back over the rest of your life, just at a slightly worse interest rate than a mortgage and with no set term.

You're probably not borrowing for life so the deal is probably better than a pension lump sum.

jimi_man wrote: »

I'm in a similar position in a few months. My commutation factor is 22 but that's massively offset by the fact than I'm 51, so it probably amounts to about the same as 12 when you're 60.

Is the normal retirement age really 51? Usually it's better to wait to normal retirement age, using other funds like defined contribution pensions or savings, or using borrowing, to delay until then or closer to it. That's because the reductions for taking defined benefit pensions bore normal retirement age are often punitive, though it does depend on the specific scheme.

jimi_man

jamesd wrote: »

You're probably not borrowing for life so the deal is probably better than a pension lump sum.

Is the normal retirement age really 51? Usually it's better to wait to normal retirement age, using other funds like defined contribution pensions or savings, or using borrowing, to delay until then or closer to it. That's because the reductions for taking defined benefit pensions bore normal retirement age are often punitive, though it does depend on the specific scheme.

Yes it is. It's a public sector pension, I'll have reached maximum pension (2/3) with no more (in that scheme) possible accrual and it can be taken with no penalties.

xylophone

It's a public sector pension

1987 Police Pension Scheme?

jimi_man

xylophone wrote: »

1987 Police Pension Scheme?

Yes it is. I always hesitate to name it; it's a fantastic scheme and I'm extremely fortunate to have it, but I know it's pretty costly in terms of taxpayers money. It has changed a couple of times since then, but even the current CARE version is still pretty good.