Police Pension
Commutation Explained
A complete, plain-English guide to how police pension commutation works, how lump sums are calculated, and what officers should consider before making a decision. Study the trade-offs below or use our interactive Commutation Modeller.
Trust Notice: Independent explanation of public pension rules. Not regulated financial advice. Not affiliated with any police force or pension administrator.
HM Treasury raised the SCAPE discount rate from CPI + 1.7% to CPI + 2.0% on 19 May 2026, and the Government Actuary's Department (GAD) issued lower 1987 scheme commutation factors that came into force on 21 May 2026 (for example 25.55 at age 50, down from 26.90). Each £1 a year of 1987 pension given up now buys roughly 4% to 5% less lump sum; where the HMRC tax-free limit is what caps your lump sum, the maximum tax-free amount fell by about 1%. For full details, tables, and scheme impacts, read our flagship 2026 Police Pension Lump Sum Changes Guide.
Executive Summary
Commutation allows police officers to exchange part of their annual pension income for a larger lump sum at retirement.
This is optional. Officers can choose to:
- Take the standard lump sum (if applicable under their scheme).
- Increase their lump sum by reducing their annual pension.
- Or take less lump sum to increase pension income.
The Financial Trade-off
The decision depends on retirement age, health, life expectancy, mortgage position, debt, other savings, and tax considerations. Once made, commutation choices are irreversible.
What Is Police Pension Commutation?
Commutation means exchanging part of your annual pension income for a lump sum at retirement.
No automatic lump sum: commute up to a quarter.
2006: automatic 4x lump sum. 2015: optional, £12 per £1.
Give up part of annual pension for a lump sum (1987, 2015).
2015: fixed at £12 per £1 by regulation 124. 1987: set by GAD factor tables that vary by age and are reviewed (new tables from 21 May 2026).
How Police Pension Commutation Works
When you retire, your pension is calculated first. In the 1987 and 2015 schemes you are then offered the option to give up part of it for a lump sum. In the 2006 scheme you receive an automatic lump sum of four times the pension and can exchange some or all of it for extra pension instead (reg 37); there is no option to give up pension for more cash.
The Exchange Rate
For every £1 of annual pension given up, you receive a one-off lump sum calculated using a commutation factor: £12 in the 2015 scheme, the GAD factor for your age in the 1987 scheme.
1987: GAD sets the factor by age in years and months (23.22 at exactly 55 from 21 May 2026). 2015: fixed at 12 whatever your age.
You cannot change your mind after the election is made.
Is the Lump Sum Tax Free?
HMRC's tax-free maximum where pension is commuted is 20fg / (20 + 3f), roughly 25% of the value of the benefits with the pension counted at 20 times.
f is the commutation factor and g the pension before commutation (HMRC PTM063240). Lump sums also count against the £268,275 lump sum allowance (PTM171000). Anything above these limits is not tax-free. In the 1987 scheme, commuting the full quarter can exceed the HMRC limit when the factor is above 20 (GAD), which is the case at every age up to about 61 under the current tables; the 2015 scheme does not allow commutation beyond the limit (reg 124(5)).
Should You Commute Your Police Pension?
Reasons to Commute
- Paying off mortgage
- Clearing debt
- Funding children's education
- Investing elsewhere
- Creating financial flexibility
Reasons Not To
- Desire for higher guaranteed income
- Concern about longevity risk
- Inflation protection preference
- Limited alternative income sources
This depends entirely on personal circumstances. Once commuted, the annual pension reduction lasts for life.
The Lifetime Trade-Off
When you commute pension, you receive cash immediately.
But you permanently reduce:
- Annual pension income
- Inflation-linked increases
- Possibly survivor pension (not in the 1987 scheme; ask your administrator for 2015)
If you live a long retirement, the cumulative loss of income may exceed the lump sum received.
Trading long-term security for immediate liquidity.
Commutation Under Each Scheme
1987 Scheme
- No automatic lump sum
- Commute up to a quarter of the pension at the GAD factor for your age (reg B7); under 30 years' service, capped at 2.25 times the pension
2006 Scheme
- Automatic lump sum of 4 times the pension (reg 28)
- No option to commute more; you can exchange some or all of the lump sum for extra pension at GAD factors (reg 37)
2015 Scheme
- No automatic lump sum
- Entire lump sum created through commutation at £12 per £1, up to about 35.7% of the pension (reg 124)
Understanding your scheme is critical.
Sources: Police Pensions Regulations 1987 reg B7; Police Pensions Regulations 2006 regs 28 and 37; Police Pensions Regulations 2015 reg 124; GAD 1987 commutation factor letter of 21 May 2026; NPCC SCAPE discount rate FAQs (20 May 2026); HMRC PTM063240 and PTM171000. Checked September 2026.
Decision Support
Commutation Consideration Checklist
Before commuting, ask:
Contextual Analysis
Frequently Asked Questions
What is police pension commutation?
Police pension commutation allows officers to exchange part of their annual pension income for a lump sum at retirement.
How much lump sum can I take?
It depends on the scheme. 1987: up to a quarter of the pension at the GAD factor for your age, capped at 2.25 times the pension with under 30 years' service. 2006: an automatic lump sum of four times the pension, which cannot be increased. 2015: £12 for each £1 a year given up, up to about 35.7% of the pension. HMRC limits also apply.
Is the lump sum tax free?
Up to HMRC limits: 20fg / (20 + 3f) where pension is commuted (PTM063240), and the £268,275 lump sum allowance. In the 1987 scheme the full quarter can exceed the HMRC limit when the factor is above 20.
Can I change my decision later?
Generally not once it has taken effect and the lump sum has been paid. 2015: the option must be used before the first pension payment (reg 124(2)). 1987: notice can be given from 4 months before to 6 months after retirement (reg B7(5)).
Does commutation reduce my pension permanently?
Yes. The reduction applies for life and affects annual inflation increases.
Retirement Command Centre
Unlock your full actuarial trajectory. Model McCloud windfalls, tax liabilities, and private-sector equivalents within our specialized strategy engine.
Final Assessment
Police pension commutation is not about right or wrong. It is about balance.
The scheme provides one of the strongest guaranteed incomes in UK employment. Reducing that income in exchange for cash must be weighed carefully.
Understanding the mechanics is essential before making the decision.