Commutation factor

Pat38493

Albermarle said:

They are quoting pension of £18.5K without lump sum in 2026, which seems quite high for taking an £28k pension 8 years early?

Looks within the normal range - around 4%pa reduction.

 but they usually take weeks to respond - it is Mercer.

You have my sympathy 

By the way when you said that a commutation of 28 is “very good” do you mean it’s too good to be true or just on the maximum high side of the normal range?

Albermarle

Pat38493 said:

Albermarle said:

They are quoting pension of £18.5K without lump sum in 2026, which seems quite high for taking an £28k pension 8 years early?

Looks within the normal range - around 4%pa reduction.

 but they usually take weeks to respond - it is Mercer.

You have my sympathy 

By the way when you said that a commutation of 28 is “very good” do you mean it’s too good to be true or just on the maximum high side of the normal range?

I do not really know . All I know is that a typical private sector DB scheme seems to have a commutation rate around 20-22.

Marcon

Albermarle said:

Pat38493 said:

Albermarle said:

They are quoting pension of £18.5K without lump sum in 2026, which seems quite high for taking an £28k pension 8 years early?

Looks within the normal range - around 4%pa reduction.

 but they usually take weeks to respond - it is Mercer.

You have my sympathy 

By the way when you said that a commutation of 28 is “very good” do you mean it’s too good to be true or just on the maximum high side of the normal range?

I do not really know . All I know is that a typical private sector DB scheme seems to have a commutation rate around 20-22.

Don't forget that commutation rates are normally age related, so you may not be comparing like with like if someone is retiring early or late.

Thrugelmir

Pat38493 said:

Albermarle said:

nor does it correspond to 25% of a recent CETV estimate so I don’t know how that is calculated either.

The CETV is completely separate from the calculation you are querying , so not relevant.

By the way , a commutation rate of 15:1 is not great whilst 28:1 is very good .

If it turns out the numbers are wrong, this will seem quite puzzling to me - aren’t they supposed to be overseen by the FCA or something so shouldn’t these kind of calculations be double and triple  checked, given that I could be making big life plans based on such data?  I have never had my payroll dept make a mistake calculating my salary in 30 years and my bank has never made a mistake on a bank statement so it’s a bit puzzling that pension admins could send you wrongly calculated estimates.

You are asking them to gaze into a crystal ball and answer hypothetical what if questions. Your pension isn't as yet in payment. So there's probably been no absolute verification of the figures. Too many other more important day to day jobs to be undertaken to waste huge amounts of time and resources. Estimates will constantly change as the real data comes into play.  Payroll departments work on factual information. Your pension will eventually be the same in a few years time. 

Pat38493

Thrugelmir said:

Pat38493 said:

Albermarle said:

nor does it correspond to 25% of a recent CETV estimate so I don’t know how that is calculated either.

The CETV is completely separate from the calculation you are querying , so not relevant.

By the way , a commutation rate of 15:1 is not great whilst 28:1 is very good .

If it turns out the numbers are wrong, this will seem quite puzzling to me - aren’t they supposed to be overseen by the FCA or something so shouldn’t these kind of calculations be double and triple  checked, given that I could be making big life plans based on such data?  I have never had my payroll dept make a mistake calculating my salary in 30 years and my bank has never made a mistake on a bank statement so it’s a bit puzzling that pension admins could send you wrongly calculated estimates.

You are asking them to gaze into a crystal ball and answer hypothetical what if questions. Your pension isn't as yet in payment. So there's probably been no absolute verification of the figures. Too many other more important day to day jobs to be undertaken to waste huge amounts of time and resources. Estimates will constantly change as the real data comes into play.  Payroll departments work on factual information. Your pension will eventually be the same in a few years time. 

I understand your point but not exactly - the currently known rules about commutation and lump some cash benefits that would be applicable to a retirement date are known, and are set out in the scheme fact sheet, or at least seem to be so.  For example, it mentions that for future periods, an growth rate of 2.5% is assumed, and it specifically mentions specific commutation values.

Once they have calculated the estimated pension without lump some, the current state rules can be applied to calculate the lump some available and the pension, of course with the proviso that the rules or laws could change in future.

I’m not really following which crystal ball gazing is needed there - it seems to me that either their calculation of the lump sum reduction is wrong, or, there is something in the pension rules that they are applying which is not mentioned in the pension fact sheet - for example as alluded above there is an entitlement to a cash benefit PCLS, although none of the documents I have specifically mentions this.

To put it another way - what I am saying is that the maths between the estimate with and without lump sum doesn’t add up on a very simple maths calculation compared to the information in the pension fact sheet.

Thrugelmir

Pat38493 said:

Thrugelmir said:

Pat38493 said:

Albermarle said:

nor does it correspond to 25% of a recent CETV estimate so I don’t know how that is calculated either.

The CETV is completely separate from the calculation you are querying , so not relevant.

By the way , a commutation rate of 15:1 is not great whilst 28:1 is very good .

If it turns out the numbers are wrong, this will seem quite puzzling to me - aren’t they supposed to be overseen by the FCA or something so shouldn’t these kind of calculations be double and triple  checked, given that I could be making big life plans based on such data?  I have never had my payroll dept make a mistake calculating my salary in 30 years and my bank has never made a mistake on a bank statement so it’s a bit puzzling that pension admins could send you wrongly calculated estimates.

You are asking them to gaze into a crystal ball and answer hypothetical what if questions. Your pension isn't as yet in payment. So there's probably been no absolute verification of the figures. Too many other more important day to day jobs to be undertaken to waste huge amounts of time and resources. Estimates will constantly change as the real data comes into play.  Payroll departments work on factual information. Your pension will eventually be the same in a few years time. 

  For example, it mentions that for future periods, an growth rate of 2.5% is assumed, and it specifically mentions specific commutation values.

Unless the scheme has a guaranteed annual uplift that exceeds the rate of inflation. Then there's unlikely to be any real growth. Potentially the reverse if the cap is lower than the current rate in any given year. At best the buying power is going to be the same as it is in todays values.