Resettlement commutation explained

What resettlement commutation actually is

Resettlement commutation is an AFPS 75 facility that lets you give up part of your annual pension in exchange for a larger tax-free cash sum at the point you leave. It only applies when you are leaving Regular service with an Immediate Pension, which AFPS 75 pays to officers after 16 years from age 21 and to other ranks after 22 years from age 18. In plain terms, you are choosing to take some of your future pension income as cash up front.

The word resettlement in the name is the clue to its purpose. It is meant to give leavers a bigger lump of tax-free money to help fund the move back into civilian life, a house deposit, retraining, or simply a cushion while you find your feet. Because of that, it is a one-off choice made as you leave, not something you can switch on and off later.

It is entirely optional. You can leave with your standard Immediate Pension and take nothing extra, or you can commute a slice of the annual pension to boost the cash. The trade is simple in principle: more cash today in return for a smaller pension cheque for the years that follow.

It sits on top of the automatic lump sum

The first thing to be clear about is that AFPS 75 already pays an automatic tax-free lump sum of three times your annual pension when your Immediate Pension starts. That happens whether or not you touch resettlement commutation, and you do not give up any pension to receive it. It is built into the scheme.

Resettlement commutation is extra cash on top of that automatic lump sum. You create it by surrendering some of the annual pension, and the amount released is added to the tax-free sum you already receive. So a leaver can end up with the automatic three-times lump sum plus a further commuted amount, all paid tax-free at the point of leaving.

That layering is what makes AFPS 75 different from the newer scheme, where there is no automatic lump sum at all and every penny of tax-free cash has to be commuted from the pension. Here, commutation is a top-up rather than the only route to a lump sum.

How much you can give up

There is a ceiling on how much of your pension you can give up this way, but it is not the tidy percentage some people expect. The research this guide is built on does not pin AFPS 75 resettlement commutation to a single published cap, so treat the exact limit as something to confirm on an official forecast rather than a figure to assume.

What holds in every case is the shape of the trade. The more annual pension you surrender, the bigger the cash sum, and the smaller your ongoing pension for the years you draw it. HMRC also caps how much of any pension can be taken as tax-free cash, which is why commutation is limited rather than open-ended. In the fixed-rate AFPS 15 scheme, for comparison, that HMRC ceiling works out at a lump sum of up to 25% of the capitalised value of the benefits.

Because the ceiling and the sums involved turn on your own figures, this is one to model carefully before you commit. Giving up too much pension for cash you do not strictly need can leave you short later in retirement, so it pays to see the reduced pension alongside the cash before deciding.

How the cash is worked out (GAD factors)

The rate you get is where AFPS 75 parts company with the newer scheme entirely. Instead of a flat multiplier, the extra cash is worked out from age-banded factor tables published by the Government Actuary's Department, specifically the resettlement commutation factors in GAD Table 801. The factor is applied to the pension you give up to arrive at the lump sum.

The key point is that these commutation factors vary by your exact age in years and months at the relevant date. There is no single scheme-wide number, so two people surrendering the same amount of pension can receive different sums simply because they leave at different ages. That is why AFPS 75 resettlement commutation cannot be reduced to one multiplier the way the newer scheme can.

It also means our commutation calculator does not attempt AFPS 75 resettlement commutation. The calculator models the fixed 12:1 AFPS 15 case precisely, because that rate is scheme-wide, but working out a resettlement figure needs the full GAD age tables and your exact age, so an official forecast is the reliable route for a real number.

How the reduction is applied and restored

When you commute, your annual pension is reduced by the slice you gave up, and that reduced figure is what lands in your account each year. Remember that an AFPS 75 pension is flat until age 55 and then rises with CPI each year, with all the past inflation applied in one go at 55, so the shape of the pension around that birthday matters as much as the commutation itself. From April 2026 the relevant CPI uprating is 3.8%.

The reduction is not necessarily permanent, and this is the feature that most sets resettlement commutation apart. In most cases the pension you gave up is restored to you later in life, commonly around state pension age, rather than being lost for good. In that sense it behaves more like an advance against your pension than a straight, permanent swap.

The exact age at which the reduction is restored is set by the scheme rules and turns on your own circumstances, so it is one of the specifics worth confirming on an official forecast before you rely on it. What you should not assume is that the AFPS 75 reduction works like the permanent one in the newer scheme, because in the important respect of restoration it does not.

How it differs from ordinary commutation

It helps to line resettlement commutation up against the ordinary commutation that AFPS 15 members use, because the two are often confused. AFPS 15 has no automatic lump sum, so tax-free cash is created at a fixed rate of £12 for every £1 of annual pension given up, capped at a lump sum of 25% of the capitalised value, and that reduction to the pension is permanent.

So the headline differences are the rate, the age sensitivity, and what happens afterwards. AFPS 75 uses GAD age factors and, in most cases, restores the pension later, while AFPS 15 uses a flat multiplier that everyone shares and keeps the reduction for good. Neither is better in the abstract; they are simply different mechanisms attached to different schemes.

Not the same as the Resettlement Grant

One genuine trap is the Resettlement Grant, which sounds almost identical but is a completely separate payment. The Grant is a fixed, one-off tax-free sum for people who leave before they qualify for an Immediate Pension, not a way of turning pension into cash.

The eligibility is different too. The Resettlement Grant goes to officers with at least 9 years' reckonable service from age 21, and to other ranks with at least 12 years from age 18, provided they are not already entitled to an Immediate Pension or other grant. At April 2021 rates the fixed sums were £16,597 for officers and £11,344 for other ranks.

So the quick test is which side of the Immediate Pension line you fall. If you qualify for the Immediate Pension, resettlement commutation is the tool for extra cash; if you leave short of it, the Resettlement Grant is the fixed payment you may receive instead. They do not stack, and they are not the same thing.

What to do before you decide

Because resettlement commutation turns on GAD factors and your exact age, and because the restoration age depends on your own record, this is firmly a case for an official forecast rather than a back-of-the-envelope sum. Veterans UK can give you the figures calculated on your actual service, which is the only truly reliable basis for a decision this size.

This site is independent and is not affiliated with the MOD, Veterans UK or JPAC, and the numbers here are estimates rather than regulated financial advice. Use our guides and tools to understand how the pieces fit together and to ask sharper questions, then confirm the specifics on a forecast before you commit to giving up any pension.

For a decision as long-lasting as swapping pension for cash, it is also worth taking regulated advice from someone who knows the armed forces schemes. Once you have leaned on a bigger lump sum and a smaller pension, that choice is hard to unwind, so it is worth getting right the first time.