DDI, by all means differ, 'cos there are (at least) two sides to this. During my resettlement the two Forces Banks did a good job of presenting the arguments for and against commutation but the final decision for an individual depends solely on that individual's circumstances.
If you know:
a. how long you are going to live
b. what is going to happen to interest rates until you die
c. what is going to happen to the Stock Market until you die
d. and several other personal factors regarding marriage, divorce, children etc
then its dead easy to arrive at the correct answer for you about pension commutation.
If you
really need capital to start that business that is going to make you rich, then commute the lot. But
don't imagine that when you get to 55 you are going to get the same pension and increases that you would have got anyway.
Yes, at 55 your pension, which was
frozen on retirement, is reset to the age 55 figure but that is now less than
the full pension because when you commuted you took a pile of money out of the pension fund. The Index Linking now works on that lower pension figure. So annual 3% (say)commpound increases on £20,000 will be a lot less than on £25,000 as time passes.
If course your widow's pension is completely unaffected by commutation. So if you know you are going to die soon after retirement, then commute the lot to give her the extra capital as well as the half-pension.
When you say "given that Officer X is likely" and "in theory". You more or less prove my point that it is a gamble.
It's along the lines of "given that the other guy is likely to have a pair of sixes" and "in theory the next card in the deck is going to be a seven or a heart so I should win that handsome pot with two sevens or a flush."
Enjoy the Capital Sum on Retirement with Hoiday/Retail Therapy etc. You've earned it. But if you spend the
commuted capital on anything that doesn't bring a guaranteed return greater than inflation (after tax), it will dribble away leaving you to regret it at your leisure. I've heard that regret expressed many times from those who did just that.
Of course if you're stinking rich anyway and Dad is going to leave you that Estate and Pile in Scotland, take the money and run!
[ 16 July 2001: Message edited by: fobotcso ]