Help with commutation factor

L9XSS

Hi all, just looking to understand what tax free amount I could get from a DB pension at 65 (Scheme retirement age).
My pension statement shows a payable pension of £18,590 per annum with RPI increases yearly. A commutation factor of 17 would be applied at 65 year of age if I wanted a tax free lump sum and reduced pension. Anyone more knowledgeable than me could work out what this tax free amount would be and what the reduced pension would be as well?

Secondly What are everyone’s thoughts on commutation? Is the figure in line with other industries?
Have you taken a commuted figure?
Where to invest it?
(PS I’m not planning on buying a Lamborghini Mr Osbourne).

Thanks in advance?

xylophone

A commutation factor of 17 

https://www.barnett-waddingham.co.uk/comment-insight/blog/what-is-commutation/ shows one method.

NottinghamKnight

L9XSS said:

Hi all, just looking to understand what tax free amount I could get from a DB pension at 65 (Scheme retirement age).
My pension statement shows a payable pension of £18,590 per annum with RPI increases yearly. A commutation factor of 17 would be applied at 65 year of age if I wanted a tax free lump sum and reduced pension. Anyone more knowledgeable than me could work out what this tax free amount would be and what the reduced pension would be as well?

Secondly What are everyone’s thoughts on commutation? Is the figure in line with other industries?
Have you taken a commuted figure?
Where to invest it?
(PS I’m not planning on buying a Lamborghini Mr Osbourne).

Thanks in advance?

Sounds like a public sector pension, so the commutation rate is poor but the pension is very good.

L9XSS

It’s actually retail. Sainsbury’s..........

xylophone

Sounds like a public sector pension, so the commutation rate is poor but the pension is very good.

Public Sector Commutation Rate is 12:1.

NottinghamKnight

Fair enough still far better than you might get on he open market. OP if you flip the commutation rate around then that tells you whatt yield/ interest rate you would need to replace the income. Tax is also a consideration but at 17 then this gives a required yield of around 6% which obviously isn't available, take as much pension as you can.

L9XSS

Thanks to Xylophone & NottinghamKnight. Basically it’s not in my interest to take the commutated lump sum. For circa 89k I would be giving up £5235 pension each year.
im happy to stay with the pension and take the yearly increases. I had agonised over transfer out but the CETV at best was x 25.
i will let Sainsbury’s worry about the financial markets and take my yearly pension.
thanks for your help guys.

jimi_man

xylophone said:

Sounds like a public sector pension, so the commutation rate is poor but the pension is very good.

Public Sector Commutation Rate is 12:1.

In some of them, but it's not universal in the public sector, in some schemes it's more.
However they never use RPI as in the OP, they've all changed to CPI now.

Marcon

L9XSS said:

Thanks to Xylophone & NottinghamKnight. Basically it’s not in my interest to take the commutated lump sum. For circa 89k I would be giving up £5235 pension each year.
im happy to stay with the pension and take the yearly increases. I had agonised over transfer out but the CETV at best was x 25.
i will let Sainsbury’s worry about the financial markets and take my yearly pension.
thanks for your help guys.

Just to flesh out the picture a bit more, especially for anyone else reading and pondering commutation. Remember that if you have a choice about taking tax free cash, as opposed to it being automatic under the scheme rules,  it is normally only your own pension you are commuting; any spouse's benefit would be based on the pension you would have received had you not taken any tax free cash. Also bear in mind you can normally choose how much to commute - anything from nil to the maximum permitted by the scheme rules (which may be less than HMRC rules permit, so always something to check).