Civil Service Pensions - inverse commutation question

Suffolk_lass

I am due to retire in February and due to my birth date, I retained reserved rights to stay with the original PCSPS (Classic, they now call it).

I have received my pension quote this week and it talks about commutation (i.e., the ability to increase my tax-free lump sum up to 25% of my pot value). It is clear that I can increase by £12 for each £1 of pension I may wish to commute.

I am aware that reverse or inverse commutation is also a possibility but there is nothing in my pack to tell me about it. Does anyone here know what the calculation formula is please? (or have a link to the pension calculator for this?)

I would be looking to do this for spouse benefits too. I have found a PDF online but I am not confident it is right or for my scheme

hugheskevi

Formula is set out here - https://www.civilservicepensionscheme.org.uk/media/256526/pcsps-inverse-commutation-factors.xlsx

Brynsam

...or you could of course contact the scheme administrators direct.

GunJack

The numbers produced by that calculation look to be extremely poor - around 540 extra p.a. for £10k ls given up at 60....not something I think I'll be looking to do when my time comes...

Audaxer

Suffolk_lass wrote: »

I am aware that reverse or inverse commutation is also a possibility but there is nothing in my pack to tell me about it. Does anyone here know what the calculation formula is please? (or have a link to the pension calculator for this?)

I would be looking to do this for spouse benefits too. I have found a PDF online but I am not confident it is right or for my scheme

If you saying you want to reduce your lump sum to get a higher pension, that does not increase the benefit to your spouse in any way. Your spouse will be entitled to 50% of what your full pension would have been even if you take the reduced pension and full lump sum.

westv

GunJack wrote: »

The numbers produced by that calculation look to be extremely poor - around 540 extra p.a. for £10k ls given up at 60....not something I think I'll be looking to do when my time comes...

Better than an index linked annuity though if that sort of thing floats your boat.

Linton

GunJack wrote: »

The numbers produced by that calculation look to be extremely poor - around 540 extra p.a. for £10k ls given up at 60....not something I think I'll be looking to do when my time comes...

It is not extremely poor - it is impossible to provide a guaranteed life-long inflation linked income of £540/year (£432 after tax) for £10K in any other way. When planning for retirement it is common to use a figure of 3.5%, and that isnt guaranteed.

Suffolk_lass

hugheskevi wrote: »

Formula is set out here - https://www.civilservicepensionscheme.org.uk/media/556941/pcsps_inverse-commutation-classic-only-190919.pdf

Thanks hugheskevi I was looking at the right thing. At my age, it would take 15-20 years to pay for itself and a little less if I were to go for no spousal benefits, but that assumes no capital growth to the lump sum and a bit of inflation to the annual pension. My objective was to look at boosting my spousal benefits a bit as his DB is likely to be around £8k p.a

The amount I was looking at is quite small and so I am not going to bother. My DH is working to the end of the school year and will take his DB then too. I think we forgot about the CPI when we first looked at these things. For me the best is the first of my three years and so it has already uplifted by over 3% and will do so again from April, by another 2.2% (I would not get this if it was the most recent of the three years)

Suffolk_lass

Audaxer wrote: »

If you saying you want to reduce your lump sum to get a higher pension, that does not increase the benefit to your spouse in any way. Your spouse will be entitled to 50% of what your full pension would have been even if you take the reduced pension and full lump sum.

Actually the table includes a calculation for spousal benefits too, and a weighting for male vs female member of the pension scheme. For us, the female calculations are 5.18% for just me or 4.97% with spousal benefits too.

And of course, being immortal and akin to Captain Scarlett we are looking at long and happy retirements but I wanted to consider the implications before I wrote it off.

Suffolk_lass

westv wrote: »

Better than an index linked annuity though if that sort of thing floats your boat.

We won't be doing that with our (DH's) DC Pot. We took 25% TFLS in Feb this year (just a few days after the top of this year's stock market peak) to pay a lump off the remaining mortgage and moved the 75% remainder into a less equity-focussed fund. We will draw some down over the gap years between finishing work and taking our SPs at 66. I believe the part between DH's DB Pension and the income tax threshold will be tax free in those years, (although the remainder will be taxed at the prevailing rate).

Suffolk_lass

Thanks for the reminder Linton, it is really easy to overlook inflation, indexation and interest when we look at these things.