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    • ProDave
    • By ProDave 11th Sep 19, 11:00 AM
    • 1,310Posts
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    ProDave
    UKAEA inverse commutation questions.
    • #1
    • 11th Sep 19, 11:00 AM
    UKAEA inverse commutation questions. 11th Sep 19 at 11:00 AM
    I have a deferred UKAEA pension, which is pretty much a civil service pension, though no doubt there are some differences.

    If I wait just over 3 years to age 60 it will pay me (in todays money) 21824 lump sum and 7275 pension.

    What I am trying to find, with no luck yet from the present scheme administrator, is how much extra pension I would get if I inverse commuted the entire lump sum to an increased pension.

    Does anyone have any idea, even roughly, what that might be?

    Also the lump sum I understand would be tax free. If I did commute that to increased pension, would the first say 25% of that pension be tax free or would the entire pension be treated as taxable income? If so that would appear to be worse tax treatment so would have to be factored into my decision.
Page 1
    • JoeCrystal
    • By JoeCrystal 11th Sep 19, 11:25 AM
    • 1,811 Posts
    • 1,279 Thanks
    JoeCrystal
    • #2
    • 11th Sep 19, 11:25 AM
    • #2
    • 11th Sep 19, 11:25 AM
    You get a bit of better luck waiting for an actual answer back from the scheme administrator. I had a quick look at the rules, and it is based on the appropriate tables drawn up by the Actuary, so really, it varies every so often. The entire pension would be treated as taxable income (above 12,500) of course.

    You need to bear in mind while comparing the options what is your likely life expectancy is and examines which one you come out better on. Bearing in mind that the personal allowance is expected to go up by inflation as well.
    • ProDave
    • By ProDave 11th Sep 19, 11:29 AM
    • 1,310 Posts
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    ProDave
    • #3
    • 11th Sep 19, 11:29 AM
    • #3
    • 11th Sep 19, 11:29 AM
    This is my problem, the administrator of the scheme seems incompetent. I sent them an email asking the question. The reply was to phone them, so I did, and they told me I have to ask by email.

    I have now sent the second email to ask the question.

    Since I don't need an accurate answer, I thought someone here might have done similar and be able to give me a rough idea.

    The tax treatment is bad news, in effect you have to factor 20% reduction in the "extra" pension before deciding if it is a good idea or not. With my other pensions I will be above the tax threshold so any increase would be taxed at basic rate.
    • JoeCrystal
    • By JoeCrystal 11th Sep 19, 11:35 AM
    • 1,811 Posts
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    JoeCrystal
    • #4
    • 11th Sep 19, 11:35 AM
    • #4
    • 11th Sep 19, 11:35 AM
    This is my problem, the administrator of the scheme seems incompetent. I sent them an email asking the question. The reply was to phone them, so I did, and they told me I have to ask by email.

    I have now sent the second email to ask the question.

    Since I don't need an accurate answer, I thought someone here might have done similar and be able to give me a rough idea.

    The tax treatment is bad news, in effect you have to factor 20% reduction in the "extra" pension before deciding if it is a good idea or not. With my other pensions I will be above the tax threshold so any increase would be taxed at basic rate.
    Originally posted by ProDave
    Well, you can use the nuclear option (pun intended!) and write a letter. I often find a letter to be a better way of getting an actual answer back from the organisation.
    • nigelbb
    • By nigelbb 11th Sep 19, 12:21 PM
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    nigelbb
    • #5
    • 11th Sep 19, 12:21 PM
    • #5
    • 11th Sep 19, 12:21 PM
    Average life expectancy at 60 is about 25 years so if you took the cash free lump sum it would be worth more than an extra 1000/year in pension.
    • ProDave
    • By ProDave 11th Sep 19, 12:36 PM
    • 1,310 Posts
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    ProDave
    • #6
    • 11th Sep 19, 12:36 PM
    • #6
    • 11th Sep 19, 12:36 PM
    Average life expectancy at 60 is about 25 years so if you took the cash free lump sum it would be worth more than an extra 1000/year in pension.
    Originally posted by nigelbb
    Plus of course if I did die early, the entire residue would be left for my wife.

    It would still be nice to know how the figures work out though. If it was only 1000 extra I would not entertain the idea.
    • greatkingrat
    • By greatkingrat 11th Sep 19, 12:48 PM
    • 202 Posts
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    greatkingrat
    • #7
    • 11th Sep 19, 12:48 PM
    • #7
    • 11th Sep 19, 12:48 PM
    Using the Local Government Pension Scheme factors - a lump sum of 21824 would equal 997 of pension (taxable). Yours may be a bit different, but is unlikely to vary drastically.
    • ProDave
    • By ProDave 11th Sep 19, 1:43 PM
    • 1,310 Posts
    • 1,568 Thanks
    ProDave
    • #8
    • 11th Sep 19, 1:43 PM
    • #8
    • 11th Sep 19, 1:43 PM
    Using the Local Government Pension Scheme factors - a lump sum of 21824 would equal 997 of pension (taxable). Yours may be a bit different, but is unlikely to vary drastically.
    Originally posted by greatkingrat
    Thanks.

    If it turns out to be that low, then I would be daft to even consider it and would keep it as a lump sum.

    Oddly enough their website will let me do the "what if" the other way, and I could commute some to a smaller pension to a bigger lump sum. It will only allow me to do that calculation based on drawing the pension very soon (with an actuarial reduction) but what it quotes is a 20% reduction in annual pension would give me 1.78 times the lump sum.

    So if those multiples were still true on normal retirement, then that would be a lump sum of 39,843 and a pension of 5820

    I am not sure what that new found information adds to the predictions? and if that might give a better idea to the answer to the original question.

    They also don't say how that larger lump sum would be treated, I doubt it would all be tax free would it?
    • shinytop
    • By shinytop 11th Sep 19, 2:21 PM
    • 479 Posts
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    shinytop
    • #9
    • 11th Sep 19, 2:21 PM
    • #9
    • 11th Sep 19, 2:21 PM
    My DB scheme (private) lets me take any size of lump sum up to a maximum. The commutation rate is exactly 20x for any amount, e.g . 20k TFLS = 1k pa taxable pension.
    • xylophone
    • By xylophone 11th Sep 19, 5:40 PM
    • 30,889 Posts
    • 19,084 Thanks
    xylophone
    They also don't say how that larger lump sum would be treated,
    Combined Pension Scheme
    United Kingdom Atomic Energy Authority


    Maximum tax free cash
    HMRC allow pension scheme members to receive 25% of their pension fund as tax free cash. The 3/80th lump sum is less than the 25% maximum allowable tax free cash and members can choose to increase the value of their tax free cash up to the maximum allowed by HMRC and reduce their pension to pay for the increased lump sum. For every 1 of pension given up, 12 of additional lump sum is payable.


    http://www.uk-atomic-energy-pensions.org.uk/General/ExamplofBenefitCalc.htm
    • ProDave
    • By ProDave 11th Sep 19, 5:45 PM
    • 1,310 Posts
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    ProDave
    Thanks

    So does that 1/12 calculation mean if I went the other way then each 12 of lump sum I give up would give me 1 more pension?

    It might make more sense at that rate.
    • shinytop
    • By shinytop 11th Sep 19, 6:18 PM
    • 479 Posts
    • 567 Thanks
    shinytop
    Thanks

    So does that 1/12 calculation mean if I went the other way then each 12 of lump sum I give up would give me 1 more pension?

    It might make more sense at that rate.
    Originally posted by ProDave
    You'd have to check the scheme allows zero lump sum. AFAIR, OH's (NHS) didn't but mine does.
    • nigelbb
    • By nigelbb 11th Sep 19, 6:29 PM
    • 2,604 Posts
    • 3,372 Thanks
    nigelbb
    Thanks

    So does that 1/12 calculation mean if I went the other way then each 12 of lump sum I give up would give me 1 more pension?

    It might make more sense at that rate.
    Originally posted by ProDave
    It would make no sense for any pension scheme to offer that rate as it's far too generous. Conversely the other way round is a very poor deal for the pensioner.

    The pension scheme will work it out on actuarial tables & not give you any more than you are currently getting whether you take a lump sum or take i in instalments. If you that 21824 as a tax free lump sum it's the equivalent of 27280 gross. Age 60 your life expectancy is 25 years so even without any return on investing the lump sum you could draw down the equivalent of over 1000 per year as extra pension.
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