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Pension at 55 - Lump sum Conversion rate

27 Jul 2018, 17:38

Hi, I left RM in 2014 and am considering taking my pension at age 55.

I am in section c and understand I can give up some of my pension in exchange for a lump sum.

Does any one know what the conversion rate is? eg for every £1 you give up in pension how much lump sum do they give you? Also is it all tax free.

If any members know what the conversion rate it would be a great help to my planning.

Many thanks.

Pension at 55 - Lump sum Conversion rate

27 Jul 2018, 22:08

1Lump sums tax free and you lose 5% for every year you take it early just give em a ring to get a quote and see exactly what your options are :thumbup

Pension at 55 - Lump sum Conversion rate

28 Jul 2018, 16:38

Going by my previous statements the commutation rate is around 1:20, so for each £1 of yearly pension you give up you get £20 lump sum, and I always thought it was that!

However going by an ongoing thread, about someone wanting to take their pension early at 55(current employee), it's actually more like 1:25.

But either will give you a rough ballpark figure.

As has been said, if you're soon to be 55, you can contact the Pensions Service Centre in Sheffield for a quote.

Pension at 55 - Lump sum Conversion rate

28 Jul 2018, 17:24

Thanks Robert, just had a look at the other thread and yes the rate is nearly 1 to 25. Looks like the rate has gone up to encourage people to take a larger lump sum.

I am only 47 and not planning on drawing my pension until 55, but am considering if taking the maximum lump sum is the right thing to do in my circumstances.

I know the gerneral advice is don’t give up inflation linked pension, but the option of gaining a £20k lump sum for giving up around £860 taxable income is tempting. Putting the 20k into a stocks a share isa would mean I would need to get around 4.4% return to match my reduced pension. Clearly there would be some risk involved, but with decent dividend paying stocks such a return could be achieved.

Pension at 55 - Lump sum Conversion rate

28 Jul 2018, 19:32

A return of 4.4% doesn't sound like much, but the longer you want that rate, the harder it will be to achieve it. Pensions are long term things both in building them up and when they're paying out, so don't forget the power of compounding and the fact the pension will pay out an index linked income for life, without you having to do anything to get it.

While your investments will probably need managing to one extent or another, which is likely to get harder as you get older. Plus, if you start spending that £20k, or the growth from it, then the required percentage return would need to increase to keep pace with the compounding effect of the pension.

Pension at 55 - Lump sum Conversion rate

29 Jul 2018, 15:51

Robert you make some good points about investment return and not spending your lump sum.

I have done some research and it would appear that a conversion rate of 1 to 25 is actually pretty good though, so I still believe that for some members taking some lump sum could be a good option, especially if their income in retirement is above the tax free allowance.

As always it’s down to an individuals personal circumstances when making their pension choices and doing your own research is important.

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