Commuting DB

Some DB pensions (especially some government ones) offer a free lump sum.

Some other DB pensions let you commute some of your annual pension to get a lump sum.

The commutation rate is different for different pension schemes.  I’ve seen rates like 12 and 14, but I suspect that higher rates are quoted by some.

You can calculate (for a particular rate of investment return) whether it’s better to (1) take the lump sum (tax-free if under 25% of the pension) and invest it to get (maybe tax-free) income, or (2) leave it as taxable DB income.

At 12 or 14 it doesn’t seem a good deal to me (by assuming certain investment growth and lifespan).  But there are other considerations:

  • Your DB pension counts at 20-times for the lifetime allowance. If your commuting rate is less than 20 and this DB pension takes you over the limit then commuting at the lower rate could be useful.  I hope to have shifted most of my SIPP/DC to Drawdown by the time I start my DB pension, so I’ll have better clarity on the commuting decision.


  • Taking DB pension early will reduce the annual and lump-sum payments, but you get them for more years. This is a way to reduce the impact on lifetime allowance if that’s important to you.


If you can get an enhanced annuity (usually for health reasons), then commuting and buying an annuity might be attractive.  Or just transfer and invest, and if you die early then there’s money left.  (But beware – I’m told that most people underestimate how long they will live.  Don’t overspend.)