Forces Pension Society

Fighting for the forces and their families

The Best Bit – Resettlement Commutation

June 19, 2017
Best Bit

If you are a Warrant Officer leaving the Armed Forces today with AFPS75 and AFPS15 benefits payable, you might be wondering whether it is worth taking Resettlement Commutation or not, especially if you look at the figures as they stare at you from your online pension calculator:

  1. Resettlement Commutation sum:                                                           £19,318
  2.  Annual Pension before Resettlement Commutation:                      £12,300
  3. Annual Pension after Resettlement Commutation:                          £10,445
  4. Total reduction from pension between age 40 and age 55:            £1,855
  5. Total Cost of Resettlement Commutation (£1,855 x 15 = ):            £27,825

On the face of it, therefore, it would appear that you are having to repay £27,825 to get an additional tax free lump sum of £19,318 on your date of exit – a cost of £8,507 over and above the amount you take as an advance of pension.

But if you leave the Armed Forces and take up paid employment which, when added to your Armed Forces pension, means you are in the 40% tax bracket you have to deduct from the figure of £27,825 to amount of tax you would have had to pay to HMRC to determine the true cost of Resettlement Commutation, and at 40% that figure is £11,130.

Therefore, (and this is the best bit) rather than Resettlement Commutation costing your £8,507, you will actually benefit by a further (£11,130 – £8,507 =) £2,623.

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