Taxing Military Pensions

molerat

AFPS75 commutation is effectively a loan, a lump sum paid back by a reduction in your immediate pension up until age 55. As the IP does not increase in that time it is a fixed amount deducted and that lump sum can be invested elsewhere for a better return. As Silvertabby says, AFPS75 commutation is a no brainer. I don't believe you can commute AFPS05 (only inversely) and AFPS15 is a no brainer not to at 12:1 and is for life !

As an example at age 39 last birthday to raise £1000 cash you will lose a total of £1524 (only £1219 after basic rate tax, £914 at 40%) from your pension over the 15.5 years to age 55 - equivalent to borrowing at an APR of 6.5% untaxed, 3.1% at 20% and -0.7% at 40% !. You should easily be able to beat that.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/27985/20110927WEBPAGECHANGEINRESCOMMUTATIONFACTORS.pdf

Silvertabby

.

..lump sum can be invested elsewhere for a better return.

In our case, we paid off our mortgage 19 years early at a time when the interest rate was over 7%.