Lump sum entitlement

[Brainache]

Is the commutation factor the same going both ways - ie Lump Sum changed to Pension and Pension changed to Lump Sum ?

[RobertT]

Is the commutation factor the same going both ways - ie Lump Sum changed to Pension and Pension changed to Lump Sum ?

As far as I know there is no exact info on this within the official plan guides, but my understanding is that it would be slightly different depending on which section you’re in.

As I said in my previous post, Section A/B members get a lump sum as standard which can be reduced to get a higher pension but I believe the commutation factor is 28:1, so for every £28 of lump sum you give up you will get an extra £1 of pension.

Section C members don’t automatically get a lump sum so there is not really an option to reduce it for a higher pension as such, but it is possible to take less than the maximum allowable. In this case I believe the commutation factor is 20:1.

[baldrick]

Is the commutation factor the same going both ways - ie Lump Sum changed to Pension and Pension changed to Lump Sum ?

As far as I know there is no exact info on this within the official plan guides, but my understanding is that it would be slightly different depending on which section you’re in.

As I said in my previous post, Section A/B members get a lump sum as standard which can be reduced to get a higher pension but I believe the commutation factor is 28:1, so for every £28 of lump sum you give up you will get an extra £1 of pension.

Section C members don’t automatically get a lump sum so there is not really an option to reduce it for a higher pension as such, but it is possible to take less than the maximum allowable. In this case I believe the commutation factor is 20:1.

When I took my Section A/B pension in 2011 the commutation factor was 23.7 : 1, so for every £23.70 of lump sum I gave up I got an extra £1 of pension.
I was given the option of converting pension to lump sum. The conversion rate was 17.75 : 1, so for every £17.75 of pension given up I would have received £1 of lump sum.
I opted to convert most of my lump sum into a bigger pension, as I was intending to take VR, and knew I would get a lump sum then.
I'm still not sure if I did the right thing in converting the pension lump sum, as I will need to live to 80 to recoup the money I gave up, but my dad lived to 86, so it might work out.

[royalmaill]

Thank you Robert for the info. The whole thing gets more complicated each year. I now read that the pot will not be accessible to members if the trustees believe that the new rules threaten the stability of the scheme. I think initially the government said it was only open to defined contribution schemes rather than ours which is a defined benefit scheme. However the fact remains that if you believe that you can achieve a better return for your pot then you should be given access to it.

[RobertT]

Thank you Robert for the info. The whole thing gets more complicated each year. I now read that the pot will not be accessible to members if the trustees believe that the new rules threaten the stability of the scheme. I think initially the government said it was only open to defined contribution schemes rather than ours which is a defined benefit scheme. However the fact remains that if you believe that you can achieve a better return for your pot then you should be given access to it.

I agree that pensions can be quite complicated and the regular tinkering by successive governments doesn’t really help.

As far as I know there are no plans to let RM pension scheme members access their pots as cash under the new rules being introduced in April 2015. There still seems to be some confusion over the treatment of AVC’s but members who are part of the defined contribution plan (joined RM after April 2008)should still be able to get at their money if they want to as long as they’re at least 55.

You can argue that you should be given access to your pot and there are pros and cons to that, but in my opinion a guaranteed index linked income for life plus a spouse’s pension is a very valuable asset to have. To be able to invest your pot and keep pace with the compounded benefits you’ll get from RM over potentially 20-30+ years of retirement would be a very difficult thing to do and would get increasingly hard as the years go by.