This is the conversion rate that company defined benefit and salary related pensions schemes might offer you when choosing your retirement options between pension income and lump sums. Usually you are offered a choice of pension only, lower pension and standard lump sum or even lower pension and larger lump sum with a commutation rate.
They will tell you what the commutation factors are for converting lump sum into pension or pension into larger lump sums. It will also give you an idea if you or us, as your financial adviser, need to work out figures if you wanted to take a different pension and lump sum amount.
You will usually be supplied with the Lump Sum Into Pension Income Commutation Factor and Pension Income Into Lump Sum Commutation Factor.
37.32 = Lump sum into pension commutation factor.
This means that for every £37.32 pension commencement lump sum you give up, you will receive an £1pa pension income.
24.07 = Pension into lump sum commutation factor.
Then adjusting for taxation and allowing for inflation at 3%:
37.32 = Lump sum into pension - for every 37.32 lump sum give up = £1pa pension.
24.07 = Pension into lump sum - for every £1pa pension given up to get £24.07 tax free lump sum.