What does commutation mean in retirement income planning?

• A. Converting a lump sum into an annuity
• B. Converting part of a pension provision into a lump sum
• C. Converting a pension into a savings account
• D. Converting an annuity into a lump sum

Answer: (B)

Commutation means exchanging part of your pension entitlement for a lump-sum payment now. In retirement income planning, this gives you immediate cash while reducing the ongoing pension you’ll receive later. Schemes often allow you to convert a portion of the pension into a lump sum (subject to rules and tax rules, such as a possible tax-free portion), so you retain some pension income but have access to cash for a one-off need. This description matches converting part of a pension provision into a lump sum. The other ideas describe different actions, like turning a lump sum into an annuity or creating a savings account from pension funds, or converting an annuity into a lump sum, which are not the standard meaning of commutation in this context.