Commutation factors (GAD) explained

What a commutation factor actually is

A commutation factor is the exchange rate between annual pension and one-off cash. Give up £1 of yearly pension and the factor tells you how many pounds of tax-free lump sum you receive in return. A factor of 12, for example, hands you £12 of cash for every £1 of pension you surrender for good. It is the single number that makes the whole trade-off comparable, whatever scheme you are in.

The cash you take this way is a lump sum drawn from your own pension, not a bonus on top of it. Your annual pension is cut permanently in return, so the factor is really the price the scheme puts on that future income. A higher factor means each surrendered pound buys more cash, which is why the size of the factor is worth understanding before you sign anything.

How a factor turns pension into cash

The arithmetic is straightforward once you have the factor. You decide how much annual pension to surrender, multiply that figure by the commutation factor, and the answer is your lump sum. Your remaining pension is simply the starting pension minus the slice you gave up. So on a factor of 12, surrendering £1,000 of yearly pension produces £12,000 of tax-free cash and leaves your pension £1,000 a year lower.

The only moving parts are how much you surrender and which factor applies. In AFPS 15 the factor is fixed, so the sum is clean and predictable. In the older schemes it depends on your age, so the same £1,000 surrendered buys different amounts of cash depending on how old you are on the day. Everything else, the direction of the trade and the permanent cut to income, works the same way across the board.

Why the Government Actuary's Department sets them

GAD stands for the Government Actuary's Department, the independent team of actuaries that works out the factors used across public-service pensions, including the armed forces schemes. Its job is to make the exchange broadly fair to both sides, so that the lump sum you take today is a reasonable swap for the pension income you are giving up over the rest of your life. The factors are published as official guidance and updated from time to time.

Because GAD does the sums centrally, you do not negotiate a factor and neither does Veterans UK. You look it up. GAD keeps the tables on its Factor Guidance Hub, and each type of commutation has its own set: resettlement commutation sits in Table 801, while trivial commutation uses Tables 601 and 602. The right table plus your age gives you the figure that applies to you.

Why the factor falls with age

The headline pattern with GAD factors is that they fall as you get older, so someone commuting younger gets a higher factor than someone doing the same thing years later. It looks counter-intuitive until you see what the factor is paying for.

A commutation factor is buying out a stream of future pension payments. Give up £1 of yearly pension in your early fifties and the scheme expects to have paid that pound out many more times than if you give it up in your sixties, simply because it would have been in payment for longer. The younger member is surrendering more total future income, so each pound is worth more capital today and the factor is higher to match. Older means fewer expected years of payment, a lower factor, and less cash for each pound given up.

How each scheme handles commutation

How commutation works depends heavily on which scheme your service sits in, so it is worth separating them. AFPS 75 and AFPS 05, the final-salary schemes, already pay an automatic tax-free lump sum of 3 times your annual pension, so you do not have to create cash from scratch. On top of that they offer extra one-off options, such as resettlement commutation, and those use GAD's age-banded factor tables.

AFPS 15 is different. It pays no automatic lump sum at all, so any tax-free cash has to be commuted. It does this at a single fixed rate of 12 to 1, that is £12 of lump sum for every £1 of yearly pension surrendered, and you can commute up to 25% of your pension. Because that factor is fixed and scheme-wide rather than age-banded, it is the one case that can be modelled precisely, which is why our commutation calculator handles AFPS 15 in full.

Here is how the three schemes line up.

How to read and apply the GAD tables

To apply an age-banded table you need your exact age at the relevant date, measured in years and complete months, not just your age in whole years. You find the row that matches that age in the correct GAD table, read off the factor, then multiply it by the amount of annual pension you intend to surrender. That product is your lump sum, and the pension you keep is the original figure minus the amount surrendered.

Whether the swap suits you at all is a separate question from the mechanics. Our guide on whether it is worth commuting walks through the trade-off between cash now and income for life. For AFPS 15, where the factor is fixed, the calculator does the whole sum for you; for the older schemes the age tables and your exact date do the heavy lifting.

Limits, tax and getting it checked

There are limits on how much you can take. HMRC caps tax-free cash at 25% of the capitalised value of your pension benefits, and AFPS 15 applies that as a hard 25% ceiling on how much pension you can commute. Whatever you commute, the reduction to your annual pension is permanent; you cannot buy it back later. The pension you keep still rises with inflation each year, by 3.8% from April 2026, so the cut is to the base figure rather than to your protection against rising prices.

One caution on the numbers. This site is independent and is not affiliated with the MOD, Veterans UK or GAD, and the figures here are estimates rather than regulated financial advice. The AFPS 15 fixed factor is stable enough to model reliably, but resettlement and trivial commutation in the older schemes depend on the exact GAD tables and your precise age, so confirm those against an official Veterans UK forecast before you act. For a decision this permanent, that final check is worth the wait.