Cash Commutation Function - End User

Overview

This module contains functions for calculating pension cash commutation at retirement, allowing members to exchange pension for a tax-free lump sum. The functions handle both scheme-specific and HMRC regulatory limits.

Function: comm_total_cash

Purpose: Calculates the total cash payment available to a member from both AVC funds and pension commutation.

Inputs

Date of Birth - Member's date of birth
Sex - Member's gender (male/female)
Date of Retirement - Retirement date (used for age-based factor lookups)
Pension net of GMP group - Group of pension slices excluding GMP
GMP group - Guaranteed Minimum Pension amounts (cannot be commuted)
Total AVC fund - Additional Voluntary Contributions available
Apply plan maximum - Whether to apply scheme-specific maximum cash limit
Plan maximum - Scheme-specific maximum cash amount
Apply A-Day maximum - Whether to apply HMRC A-Day limits
Commute in order- Method of commutation:
- TRUE: Commute pension slices in priority order
- FALSE: Spread commutation proportionally across all slices
Date of Calculation - Date for factor selection
Dynamised protected A-Day cash - Protected cash amount from pre-2006 rights
Use average CCF - Whether to use weighted average commutation factor
Overriding CCF - Fixed commutation factor for all slices (0 = use slice-specific)
Apply LSA limit - Whether to apply Lump Sum Allowance (post-2024)
Personal allowance max - Member's personal lifetime allowance
HMRC pension value multiple - Multiplier for pension valuation (default 20)

Output

Returns the total cash payment combining:

Cash from AVC fund
Cash from pension commutation

Calculation Logic

Determines maximum cash under HMRC rules:
- Pre-2024: Limited to 25% of Lifetime Allowance (LTA)
- Post-2024: Limited to Lump Sum Allowance (LSA) or 25% of personal allowance
Takes AVC as cash first (up to limits)
Commutes pension to reach maximum allowed cash
Applies scheme maximum if specified

Function: comm_commuted_cash

Purpose: Calculates cash obtained solely from pension commutation (excluding AVC).

Inputs

Same as comm_total_cash

Output

Returns cash from pension commutation only, excluding any AVC taken as cash.

Use Case

Use when you need to separately identify:

How much cash comes from pension commutation
How much pension is being given up for cash

Function: comm_avc_cash

Purpose: Calculates cash taken from AVC funds only (excluding pension commutation).

Inputs

Same as comm_total_cash

Output

Returns cash from AVC fund only, before any pension commutation.

Calculation Logic

Calculates total maximum cash allowed
Takes AVC first up to the maximum
Returns the lesser of:
- Total AVC fund value
- Maximum cash allowed

Function: comm_net_pension_total

Purpose: Calculates the total residual pension after commutation.

Inputs

Same as comm_total_cash

Output

Returns total pension remaining after commutation, including:

Residual pension from all slices after commutation
GMP (which cannot be commuted)

Use Case

Use to determine the ongoing pension payable after taking cash at retirement.

Function: comm_net_pension_slice

Purpose: Calculates the residual pension from a specific pension slice after commutation.

Inputs

All inputs from comm_total_cash plus:

Pension net of GMP item - Specific pension slice to calculate
Pension before cash commutation - Gross value of the specific slice

Output

Returns residual pension for the specified slice after its portion of commutation.

Use Case

Use when you need to track how individual pension components are affected by commutation.

Key Concepts

Commutation Methods

Commute in Order

Pension slices are commuted sequentially by priority
Each slice is fully commuted before moving to the next
Useful when certain pension types should be commuted first

Proportional Commutation

Commutation is spread evenly across all eligible slices
Each slice contributes proportionally to its size
Maintains balance between different pension components

HMRC Limits

Pre-April 2024

Maximum cash = 25% of total benefit value
Subject to Lifetime Allowance (LTA)
Formula: min(pension × 20 / 3 + 0.25 × excess_AVC, LTA × 0.25)

Post-April 2024

Subject to Lump Sum Allowance (LSA)
Personal allowance may override standard LSA
Protected rights from pre-2006 are preserved

Cash Commutation Factors (CCF)

Determines exchange rate between pension and cash
Can be slice-specific or averaged
Higher factors = more cash per £1 of pension given up
Factors vary by age and scheme rules

Important Notes

GMP Cannot Be Commuted: Guaranteed Minimum Pension must remain as pension income
AVC Priority: AVC funds are used for cash before commuting pension
Tax-Free Limit: Cash is normally tax-free up to 25% of total benefits
Protected Rights: Pre-A-Day protected amounts may allow higher cash
Factor Dependencies: Results depend on commutation factors available at retirement date

Error Conditions

The functions will return zero with an error status if:

Required commutation factors are not available
Lifetime Allowance/LSA data is missing when needed
Invalid dates or parameters are provided
Pension slice configuration is incorrect