# Pension Inverse Commutation



## Taxboy (Aug 23, 2006)

I'm currently in a defined benefit pension scheme and may have the opportunity to retire early. One of my options is to reduce my lump sum in return for an increased pension. The pension is index linked to CPI

The inverse commutation rate is £4.95. I was wondering if anyone here could confirm my calculations that it would take 18 years before I benefit based on commuting £20k with an assumed bank interest rate of 1% and CPI of 2.4% over the period

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## toddy2 (Jul 21, 2009)

Whilst not a pension expert, I am also a member of a defined benefit scheme. Having also done a similar check, your calculation appears correct.

All depends on your needs though whether you need the cash lump sum now or would prefer the income. Then there’s tax to consider, assuming you’re taking the lump sum with your main pension scheme it will probably be (if 25% of the value) tax free.

Enjoy the retirement.


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## Taxboy (Aug 23, 2006)

toddy2 said:


> Whilst not a pension expert, I am also a member of a defined benefit scheme. Having also done a similar check, your calculation appears correct.
> 
> All depends on your needs though whether you need the cash lump sum now or would prefer the income. Then there's tax to consider, assuming you're taking the lump sum with your main pension scheme it will probably be (if 25% of the value) tax free.
> 
> Enjoy the retirement.


Thanks for confirming that. Although I could afford to forego the lump sum and guaranteed income is always good, I'd imagine it would have to be an extreme set of circumstances to make it viable

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