Commutation
Lump Sum Modeller
Visualize the trade-off between a tax-free lump sum and your ongoing monthly pension. Model different scenarios based on your specific police pension scheme rules.
Authority Tool: Independent financial modelling. Not regulated advice. Exact figures should be obtained from your pension administrator.
By commuting 0% of your pension, you give up £0 per year to receive a one-off tax-free payment of £0.
How to Use the Modeller
This tool is designed to provide immediate clarity on the financial trade-off involved in police pension commutation. Follow these steps to model your retirement:
Enter Pension
Use your most recent annual benefit statement to find your projected full annual pension.
Select Factor
Choose 12:1 for 2015 CARE service or adjust for the 1987 legacy scheme age factors.
Analyze Trade-off
Slide the commutation bar to see the direct impact on your monthly take-home income.
The 12:1 Fixed Commutation Rate
For service under the 2015 CARE Scheme, the commutation factor is fixed at 12:1. This means for every £1 of annual pension you surrender, you will receive £12 as a lump sum.
Is 12:1 good value?
Actuarially, a rate of 12:1 is widely criticized as being below market value for an inflation-linked lifetime income stream. However, the lump sum is generally tax-free, which remains the primary driver for many officers choosing to commute.
Legacy Age Factors (1987)
The 1987 legacy scheme is significantly more generous when it comes to commutation. Factors are determined by age and gender at the time of retirement, often reaching 20:1 or 24:1.
- Factors updated periodically by the Scheme Actuary.
- Factors generally decrease as retirement age increases.
- Requires careful modelling for McCloud Remedy choices.
Typical factor for a 50-year-old male officer in the 1987 scheme.
Frequently Asked Questions
How is the lump sum calculated?
The lump sum is the annual pension surrendered multiplied by the commutation factor. For example, surrendering £1,000 at a 12:1 rate equals a £12,000 lump sum.
Is 25% the absolute limit?
Most schemes limit commutation to 25% of the total capital value to stay within HMRC tax-free thresholds. Some legacy conditions may vary.
Does it affect survivor benefits?
In the 1987 scheme, commutation usually only reduces the officer's pension, not the potential widow/widower benefits. In later schemes, rules may differ.
When is the decision finalized?
You must make your commutation choice shortly before you retire. Once the pension starts being paid, the decision is permanent and irreversible.
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