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  • FIRST POST
    soldier sam
    Commutation of Army Pension - Is it worth it?
    • #1
    • 11th Jan 07, 5:30 PM
    Commutation of Army Pension - Is it worth it? 11th Jan 07 at 5:30 PM
    I retire from the Army next month after 22 years service and will receive a full pension. I will also have a commutation option of an additional (tax free) 16,761, but if I accept it, my monthly pension drops by 170 per month! I return to my full pension on reaching the age of 55. My question is, should I take the extra money and pay it off some of my mortgage or take the full pension (all of which will be taxed) then increase my monthly mortgage payments? I worked it out that for the 16,761 they are offering, they actually take over 30,000 from me over the 15 year period! Which option would be best?? :confused:
Page 2
  • Renovatio
    Does resettlement commutation offer positive financial benefits if the receiver dies before age 55?

    Does the surviving spouse then receive their 50% and 25% per school aged child without commutation deductions continuing until the entitled holders 55th birthdate?

    or do they still have the deduction taken from their pension?
    • Sparky29
    • By Sparky29 26th Jun 08, 12:47 AM
    • 282 Posts
    • 120 Thanks
    Sparky29
    Does resettlement commutation offer positive financial benefits if the receiver dies before age 55?

    Does the surviving spouse then receive their 50% and 25% per school aged child without commutation deductions continuing until the entitled holders 55th birthdate?

    or do they still have the deduction taken from their pension?
    Originally posted by Renovatio
    I was told that you are always better off commuting because of the tax implications already mentioned, ie the lumpsum is tax free and can start earning money, the pension is taxed.

    Also, everybody posting is assuming they are going to live to live to 55 and beyond. Statistically speaking as a squaddie you probably will die a lot younger than the national average, hence the new (money saving) Forces 05 pension the Government have introduced.. If you have dependants or NOK they are financially better off having the money up front. Don't know the maths behind it but was told you could drop dead the day after discharge and your part of the pension goes with it. An extra 16k off the mortgage for a widow would be a big help.

    Sorry to be a bit morbid but that was the way it was told to me. I may be wrong. I'm sure somebody who is better informed could comment.
  • pomp
    As you rightly said the pension is taxed, but the commution is not.

    However the government have realised that us forces guys are able to get our hands on a large amount of untaxed money, if we commute, and they are trying to close this loophole so that the commuted money will also be taxed.

    I have seen this published on our Stations Intranet but would have to do a bit of digging to find it again, so my advice is take the lot!, i know im going to next year when i get to my 22, if i can

    Yes, you do actually work out being slightly better off if you dont commute any but just take the pension, but as people have said, anything can happen between now and 55.....
  • norriesmall1
    commuting forces pensions
    Hi all,

    if you go here you will find out exactly what the commutation is for Army. This also may be useful for the Navy or Air Force personnel as well.

    http://www.army.mod.uk/documents/general/commutation_of_pensions.pdf
  • norriesmall1
    I would like to know if you also get 3 times the pensions at age 55 as a tax free package. it does not tell you on that website i just posted
    • Steveswift
    • By Steveswift 28th Oct 08, 9:19 PM
    • 255 Posts
    • 196 Thanks
    Steveswift
    help i am dull
    Hi all,

    Can you help?

    I left the Army in 1996 on Vol Redundancy with a 60k lump sum, i comm the max.

    I was a wo2 with 18 years service, i also currently recieve a 3000 pension.

    How can i work out what i might recieve in the future. I think my salary at leaving was approx 20K.

    I was also sure that i reveived a full pension at aged 55 ( i am 50 in may)

    Can any one give me ball park figures? Do i recieve a lump sum also?

    Sorry to be so dull but i dont understand pension but now feel i need to get a grip.

    Regards


    Steve
  • joe public
    Hi all,

    Can you help?

    I left the Army in 1996 on Vol Redundancy with a 60k lump sum, i comm the max.

    I was a wo2 with 18 years service, i also currently recieve a 3000 pension.

    How can i work out what i might recieve in the future. I think my salary at leaving was approx 20K.

    I was also sure that i reveived a full pension at aged 55 ( i am 50 in may)

    Can any one give me ball park figures? Do i recieve a lump sum also?

    Sorry to be so dull but i dont understand pension but now feel i need to get a grip.

    Regards


    Steve
    Originally posted by Steveswift
    I am not an expert but I doubt you would receive a lump sum at age 55 because that applies to 'preserved pensions' which are paid at age 60.

    Preserved pensions are for servicemen that leave the forces early but I don't think redundancy applies.

    My best guess is that your pension will increase by the RPI rate for the years between leaving the Army and reaching 55.

    Had you left early for a reason other than redundancy you would have received nothing until you were 60. At 60 you would have received your preserved pension of 18/22 of a full pension (including the RPI inflation) based on your 20K final earnings. In this case it would amount to around 5,250 a year (+ RPI Inflation), plus a lump sum of 3 times the annual pension tax free.

    I don't think you'll get the lump sum but using a best guess inflation figure of 3% you might find your yearly pension jumps to around 9,500 when you turn 55.
  • joe public
    I am not an expert but I doubt you would receive a lump sum at age 55 because that applies to 'preserved pensions' which are paid at age 60.

    Preserved pensions are for servicemen that leave the forces early but I don't think redundancy applies.

    My best guess is that your pension will increase by the RPI rate for the years between leaving the Army and reaching 55.

    Had you left early for a reason other than redundancy you would have received nothing until you were 60. At 60 you would have received your preserved pension of 18/22 of a full pension (including the RPI inflation) based on your 20K final earnings. In this case it would amount to around 5,250 a year (+ RPI Inflation), plus a lump sum of 3 times the annual pension tax free.

    I don't think you'll get the lump sum but using a best guess inflation figure of 3% you might find your yearly pension jumps to around 9,500 when you turn 55.
    Originally posted by joe public
    Just to follow up on my last comment - you need to claim a preserved pension yourself, it won't come through automatically. The form can be found here:

    http://www.mod.uk/DefenceInternet/AboutDefence/WhatWeDo/Personnel/Pensions/ArmedForcesPensions/TriSchemeBooklets/AfpsForm8.htm
  • tartanterra
    I retire from the Army next month after 22 years service and will receive a full pension. I will also have a commutation option of an additional (tax free) 16,761, but if I accept it, my monthly pension drops by 170 per month! I return to my full pension on reaching the age of 55. My question is, should I take the extra money and pay it off some of my mortgage or take the full pension (all of which will be taxed) then increase my monthly mortgage payments? I worked it out that for the 16,761 they are offering, they actually take over 30,000 from me over the 15 year period! Which option would be best?? :confused:
    Originally posted by soldier sam
    One of the biggest problems with making this type of decision is that it is impossible to predict what will happen in the future.
    For example, if within a few years years of leaving, the rate of inflation went through the roof, the value of your pension payment would quickly erode, but if you had commuted and invested the cash, then at least the cash you had in the bank would be benefitting from probable high interest rates.
    Unfortunately, that is just one of dozens of future scenarios, and as previously stated, none of us have a crystal ball.
    Personally, I'm leaving April 2010 and I will be taking maximum commutation, as it will help pay off my mortgage, but in essence, the decision to commute is deeply personal to your own circumstances, and what is right for one person may be completely wrong for another.
    I hope you find the right solution for you!
  • moonrakerz
    none of us have a crystal ball.
    Originally posted by tartanterra
    Very true, but I have a First Class Honours Degree in Hindsight - which may be of use !

    I left the RN in 1986.
    Pension of 3811 and gratuity of 11440.
    Option of resettlement commutation gave me:
    Pension of 3014 and gratuity of 16743. Pension went down 796 pa.
    Gratuity was tax free, pension was taxable, so to gain a tax free lump sum of 5985 I actually lost 565 pa. (Income tax was 29% in 1986)

    When I reached 55 (2001) my pension went up from 3014 to 6952 and has been index linked, anually, since then. This year it is 8426 and will rise to 8847 next year.

    I won't offer any advice, but that is my story. Most people took full resettlement commutation then, I haven't regretted doing the same.
  • mick405
    Wicked
    Brilliant . Only a member of HM forces has that sense of humour
    Soldier Sam,
    I left the RN in April with 24 years pension, I commutated the maximum (16,421 for 13 years pension). I made a 'simple' excel spreadsheet to help me decide what to do, and made the choice from there (following is using your figures):

    1) Fully commute and receive extra 16,761 (tax free) for the loss of 170 (taxed to 136) per month. With Tax free savings (i.e. cash Isa) you can put 7.2k away this year for you and another 7.2k for BH (if applicable), that's 14.4k earning tax free interest, with average cash Isa exceeding 6%.

    If you invest the whole amount earning 5% net (for example) for 15 years you should get just under 35K; assumes interest calculated annually.

    2) Don't commutate and get an extra 170 a month taxed (136 net). Invest that amount month after month, year after year at 5% net and you won't get as much!

    As already stated by MTW you could end up paying 40% tax and not 20% on that 170.

    This also counts as income against Child Tax Credit, etc.

    Or

    3) Tesco are doing 2 cases of Stella for 16, that's 2094 cases @ 20 x 284ml bottles per case! Party time!
    Originally posted by ghandi
  • jungli jim
    I'll be taking full commutation. Complete 22 Jan 09 but signed on for extra 5, might get further 5 to 2019.

    Full commutaion will give me a lump sum of cicra 55K with immediate pension of circa 800 PCM ( after tax). Without commutaion pension is circa 960. As i will be paying child support for the next 10 & 13 years, commutation will save me (CSA2) 20% of 160 i.e 32 a month for the next 10 years.
    Commutaion figure should clear mortgage, so taking the extra 17K is worth to me 17K+ interest payments (5%) for 25 years + 3800 saved CSA payments.....sure that more than offsest any savings it could accrue at Government based 1%
    Last edited by jungli jim; 02-01-2009 at 8:48 PM.
    • BettiePage
    • By BettiePage 3rd Jan 09, 5:08 PM
    • 4,483 Posts
    • 10,310 Thanks
    BettiePage
    I'll be taking full commutation. Complete 22 Jan 09 but signed on for extra 5, might get further 5 to 2019.

    Full commutaion will give me a lump sum of cicra 55K with immediate pension of circa 800 PCM ( after tax). Without commutaion pension is circa 960. As i will be paying child support for the next 10 & 13 years, commutation will save me (CSA2) 20% of 160 i.e 32 a month for the next 10 years.
    Commutaion figure should clear mortgage, so taking the extra 17K is worth to me 17K+ interest payments (5%) for 25 years + 3800 saved CSA payments.....sure that more than offsest any savings it could accrue at Government based 1%
    Originally posted by jungli jim
    Why don't you want to pay for your child/ren? :confused:
    Illegitimi non carborundum.
    • CHR15
    • By CHR15 3rd Jan 09, 5:49 PM
    • 4,840 Posts
    • 4,170 Thanks
    CHR15
    Why don't you want to pay for your child/ren? :confused:
    Originally posted by BettiePage
    I think you will find he IS paying for his children. The clue is in the part where he said,

    As i will be paying child support for the next 10 & 13 years
    See if you can understand now!!!
  • Paul.J.M
    Yes, many of you have hit the nail on the head, I am about to leave the RAF 22 years age 40.
    It is a simple decision for me to make, i am retiring in Cyprus and will be depending on every penny of my pension, hence i will not be taking the tax free lump sum. With interest rates at an almost all time low investing the lump sum is a non starter, i will be paying tax in cyprus and the personal allowance in cyprus is upto 18,000 euro's is completely tax free, my pension will be around 10,000K, 11,000 Euro and do not anticipate earning much more from working.
    It is definately a personal decision what needs very careful consideration, it may effect you later on and you mat regret your decision.

    For me its a simple one i need as much monthly income as i can get through my pension and saving investments i have.

    An extra 16,000K for 15 years with a net loss of about double that over the 15 year period is no brainer for me.
    • BettiePage
    • By BettiePage 4th Jan 09, 6:00 PM
    • 4,483 Posts
    • 10,310 Thanks
    BettiePage
    I think you will find he IS paying for his children. The clue is in the part where he said,



    See if you can understand now!!!
    Originally posted by CHR15
    No. He wants to pay less for them. Why? :confused:
    Illegitimi non carborundum.
    • CHR15
    • By CHR15 5th Jan 09, 1:02 PM
    • 4,840 Posts
    • 4,170 Thanks
    CHR15
    Maybe you think anything less then 100% of his wage is not enough, maybe some loans should be taken out too.

    There are many factors in break ups, here's one...

    Happily married family man, loving husband and father.
    Happily paying 100% of all mortgage, bills, cars, utlitities etc etc.

    Wife dumps him for another bloke, he is forced to move out, kids stay at home with mum.

    Bloke has nothing and no home.

    Bloke has to rebuild his life, can't afford another house but needs 2/3 bedrooms to maintain a relationship with the kids.

    On his sole wage (coupled to maintenance payments) he cannot afford the required standard of living so ends up living in a squat with nowhere to spend quality time with his kids.

    Trying to limit his outgoings means he can continue to provide for his kids, he can buy new clothes, uniforms, holidays, birthday/xmas gifts for his children.


    Tarring him with the typically standard, bloke who can't be bothered supporting the life he bought into this World is IMO spiteful and uncalled for (unless you know the facts).
    • BettiePage
    • By BettiePage 5th Jan 09, 4:32 PM
    • 4,483 Posts
    • 10,310 Thanks
    BettiePage


    Tarring him with the typically standard, bloke who can't be bothered supporting the life he bought into this World is IMO spiteful and uncalled for (unless you know the facts).
    Originally posted by CHR15
    You're putting words into my mouth. Don't.
    Illegitimi non carborundum.
  • Cat695
    You're putting words into my mouth. Don't.
    Originally posted by BettiePage

    would it not be better for the guy to be able to give his children a place for them to stay when they want to see him and also provide them with a future. as in the sense when he pops his clogs he can leave them a house......or is it better to give them (sorry their mum) an extra 30 odd quid a month..mmmmmh I wonder

    Typical woman that thinks short term and not long term
    If you find yourself in a fair fight, then you have failed to plan properly


    I've only ever been wrong once! and that was when I thought I was wrong but I was right
    • CHR15
    • By CHR15 5th Jan 09, 5:17 PM
    • 4,840 Posts
    • 4,170 Thanks
    CHR15
    Why don't you want to pay for your child/ren? :confused:
    Originally posted by BettiePage
    mmmmmm! .
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