Inverse commutation allows the member to exchange part of their lump sum at retirement for additional pension.
In order to calculate the extra pension payable per year, the following formula should be used:
Extra annual pension per year = (Lump sum given up x Factor) / 100
The factor to use can be found in table 203 (spreadsheet table number 503). It is determined by the member's age at their nearest birthday. For example, for a member who will be aged 55 years and 7 months at retirement, the factor for a member aged 56 would be used.
For a member who chooses not to have additional spouse's pension payable on their death, a factor from the first column should be applied.
If the member has opted to have additional spouse's pension payable on their death, the factor to use depends on whether they are a CPS (second column) or PNISS (third column) member.
If the member chooses to have additional spouse's pension payable on their death, the additional contingent spouse pension will be 4/7ths of the additional member's pension in the case of a CPS member and 1/2 in the case of a PNISS member.
The factors have been calculated on the understanding that the benefits granted are the following:
- Additional member pension in the scheme, not recharged to an employer, which commences immediately at the date of retirement.
- No additional lump sum.
- If the member opts for it, a contingent pension of 4/7ths of the additional member pension under (a) for CPS members or 1/2 of the additional member pension under (a) for PNISS members
If the description above (paragraph above) does not accurately reflect the benefits that will be granted then these factors must not be used.
The lump sum surrendered is subtracted from the actual amount of lump sum that would be paid otherwise (ie early retirement factors are applied first if relevant).
No early retirement factor is applied to the additional pension purchased through inverse commutation. (The factors already allow for the age of the member at retirement so the purchased pension does not require further adjustment).
The factors are applicable provided that the member is not more than 10 years older than the spouse. Where the member is older than the spouse by 10 years or more, these cases are bespoke and are not covered by this guidance.
Factors are not provided for members younger than 55 years. These cases are bespoke and are not covered by this guidance.
