In the answer to this question it says an advantage to variable [commutation] factor is that it is financially neutral (especially if buying out pensions).... Please can someone let me know why they would impact buyout also, on the assumption that members take max cash anyway? Thanks
Hi Apologies for the delay in reply, for some reason I have only just seen your post. Bear in mind that not all members in all schemes take max cash. If the commutation factors are variable and reflect the cost of buying out a £1 of pension and the scheme normally buys out pension, then a member's decision about how much pension to commute will have no impact on the amount of money the scheme needs to hold to provide the member's benefit. For example, suppose: - the cost of buying out a £1 of pension is currently £15 - the commutation factor is also currently 15:1 - a member is about to retire and has a pre-commutation pension of £100. The scheme liabilities in respect of this member are £1,500 whether the member commutes none of the pension or 25% of the pension. Does that help? Gresham
