What do folks think of the following commutation rates?

PJM_62

I've had a pension quote from my employer, with a view to retiring early next year, age 56. 
The pension scheme comprises both DB and DC elements.  Approx figures in the quote are:  DB = £8k py (+ £24 TFLS) ,  and  DC pot = £100k
I have the option to adjust annual pension. What do folks think of the following commutation rates?  They look shocking to me. Or am I missing something?

• DB (Pension into Lump Sum):    26.30 
• DB (Lump Sum into Pension):   42.86
• DC (Lump Sum into Pension):  51.64

Marcon

What is so 'shocking' about them?

Dazed_and_C0nfused

Plenty seem to take an extra £12 lump sum in return for losing £1 of pension for ever so 26.30 seems great in comparison.

PJM_62

Maybe I'm reading them wrong.    I read it as : 
£1k extra pension per year would cost me £51k (half) of the DC pot
and I'd get £500 per year extra for giving up all of the 22k DB TFLS.  
 

Dazed_and_C0nfused

Doesn't the 26.30 mean you will get a one off lump sum of £26.30 for every £1 of pension you agree to give up (for ever)?

PJM_62

From the letter accompanying the quote..

Maximum Pension Option (with no Lump Sum)
Firstly, USS convert the standard Lump Sum into pension;   £22,229.64 / 42.8690 = £518.55 
Then, we convert the USS Investment Builder into pension; 
£115,091.73/51.64 = £2,228.73 
These figures are then added on to the standard pension; 
£7,409.88 + £518.55 + £2,228.73 = £10,157.28 gross per annum (rounded)

HappyHarry

So in return for giving up a TFLS of £22,229.64, you get an additional £518.55 pa of additional pension? 

Given that you are 56, the USS pension is index linked and it has a spouses benefit, I don't think it is too bad. 
On the open market with those conditions, you could expect to get an annuity of around £450pa £330 pa from a sum of £22,229.

Edit: Just ran a quick quote - worse than I thought.

Linton

PJM_62 said:

Maybe I'm reading them wrong.    I read it as : 
£1k extra pension per year would cost me £51k (half) of the DC pot
and I'd get £500 per year extra for giving up all of the 22k DB TFLS.  
 

The £51K for £1k income is roughly what an inflation linked annuity would cost at 55, so nothing very surprising there.  But perhaps it is not costing them that now as they will have prepared for the full payout so they offer £22K to give up £500/year.  It all sounds reasonable.  The Trustees have a duty to act in a way that is fair both to you and to the other members of the scheme.

Guaranteeing inflation linked payments is extremely expensive.

TVAS

OMG these commutation rates are FANTASTIC! Anything above £20 is good. Giving up £1 pension gives you £26.30 tax free cash. Yes you have read them wrong. You are extremely fortunate. Just an aside. You will have an early retirement penalty on the DB element of the pension. If you have to take benefits at the same time. Would you consider transferring the DC to drawdown to deplete the non guaranteed pension first. Then retire at a later date from the DB pension so staring with a higher pension the closer you are to the scheme normal retirement date. At least ask the question. Good luck.

NedS

This got me interested so I've just checked the USS modeller for myself. Last time I checked, back in 2019, the commutation rates were 17.58 in both directions, either giving up pension for higher lump sum or giving up lump sum for higher pension, relative to the scheme default of lump sum 3 x annual pension.

Just checked again now, and the factors are 29.73 to give up lump sum for more pension (more expensive!) and 20.52 to given up pension for higher lump sum. Clearly the scheme want to encourage people to take a higher lump sum rather than reduce their lump sum in exchange for higher pension, relative to 18 months ago.

Wonder why my factors are different from the OP's? I have deferred final salary only, nothing in Investment Builder or AVCs

2nd_time_buyer

NedS said:

This got me interested so I've just checked the USS modeller for myself. Last time I checked, back in 2019, the commutation rates were 17.58 in both directions, either giving up pension for higher lump sum or giving up lump sum for higher pension, relative to the scheme default of lump sum 3 x annual pension.

Just checked again now, and the factors are 29.73 to give up lump sum for more pension (more expensive!) and 20.52 to given up pension for higher lump sum. Clearly the scheme want to encourage people to take a higher lump sum rather than reduce their lump sum in exchange for higher pension, relative to 18 months ago.

Wonder why my factors are different from the OP's? I have deferred final salary only, nothing in Investment Builder or AVCs

Did you put in the same (early) retirement age?