Police Pension Lump Sum:
What Is Tax-Free
The tax side of a police pension lump sum: the HMRC limit that decides how much is tax-free, how the 20 to 1 valuation works for each scheme, the lump sum allowance, what happens to earlier pensions, McCloud, payment timing and the 2027 inheritance tax change. Figures for 2026/27, checked against the regulations and HMRC's manual.
Independent information, not advice · Sources checked 1 October 2026 · England and Wales unless stated
Usually, yes. It is tax-free as a pension commencement lump sum if it is within 25% of the value HMRC puts on your benefits (20 times the pension left plus the lump sum) and within your £268,275 lump sum allowance. The 2006 and 2015 schemes stay inside that limit. In the 1987 scheme, commuting the full quarter can go over it, so check the quote before you sign.
How a police pension lump sum becomes tax-free
Two sets of rules decide your lump sum. The police pension regulations decide how much the scheme will pay you. The tax rules in the Finance Act 2004 decide how much of it is tax-free. Most of the time they agree. When they do not, it is the tax rules that cost you.
In tax terms a police retirement lump sum is a pension commencement lump sum (paragraph 1 of Schedule 29 to the Finance Act 2004). HMRC's manual (PTM063210) lists the conditions: it must be linked to a pension starting under the same scheme, it must be paid between 6 months before and 12 months after you become entitled, you must have some lump sum allowance left, you must have reached normal minimum pension age (or a lower protected pension age) or meet the ill-health condition, and it must not exceed the permitted maximum.
The permitted maximum is the lowest of three figures (PTM063230):
- The applicable amount: broadly 25% of the value of the benefits coming into payment. For a police pension that value is the lump sum plus 20 times the pension left after commuting.
- Your available lump sum allowance: £268,275 for most people, less any tax-free lump sums already taken since 6 April 2024 and an allowance for benefits taken before then.
- Your available lump sum and death benefit allowance: £1,073,100 for most people.
Anything paid above the permitted maximum is not a pension commencement lump sum and is not tax-free. The monthly pension itself is taxed as income through PAYE in the usual way; that is covered in our guide to tax on your police pension in retirement. Since the lifetime allowance was abolished on 6 April 2024 there is no tax test on the size of the pension itself: only lump sums are measured against allowances.
This page is about tax. For what commutation is and how the factor works, see police pension commutation explained and commutation factors explained.
How much you can take tax-free, scheme by scheme
Most officers retiring now have more than one scheme: a 1987 or 2006 part, a 2015 part from 1 April 2022 at the latest, and for many the McCloud remedy period in between. Each part is worked out under its own regulations.
| 1987 scheme (PPS) | 2006 scheme (NPPS) | 2015 scheme (CARE) | |
|---|---|---|---|
| How you get a lump sum | Optional: you give notice to commute part of your pension (reg B7) | Automatic: a lump sum of 4/70ths of final pensionable pay for each year, which is four times the pension (reg 28(1)(b)) | Optional: you exchange part of the pension before the first payment (reg 124) |
| Exchange rate | Age-related factors in tables prepared by the Government Actuary (reg B7(7)); revised on 21 May 2026 | No commutation of pension in the regulations we read. You can go the other way: give up some or all of the lump sum for extra pension, at actuarial rates (reg 37) | Fixed in the regulation: £12 of lump sum for every £1 a year of pension given up (reg 124(3)) |
| Scheme limit | Up to a quarter of the pension; with 25 to 29 years' service, a lump sum of no more than 2.25 times the pension (reg B7(4)), which still applies in England and Wales according to GAD's May 2026 example and the Police Federation | The lump sum is fixed at four times the pension | No more than 25% of the cash value of the pension as advised by the scheme actuary (reg 124(4)), and never so much that it becomes a scheme chargeable payment under the Finance Act 2004 (reg 124(5)) |
| Does HMRC's 25% limit bite? | Often, at younger ages: GAD's guidance says a member with a factor above 20 who commutes a quarter of the pension can breach it | No: four times the pension is well inside 25% of the value HMRC gives the benefits | No: the regulation stops at the HMRC limit, which the NPCC puts at giving up 35.7% of the pension |
| Changed by the May 2026 SCAPE review? | Yes, commutation factors fell from 21 May 2026 | The automatic lump sum did not change; the factors for exchanging lump sum for pension were reissued on 7 July 2026 (GAD workbook) | The 12:1 rate did not change; early payment reduction factors were revised (GAD workbook: implemented 1 August 2026) |
1987 scheme. Regulation B7 lets you commute part of your pension for "the actuarial equivalent ... calculated from tables prepared by the Government Actuary". The legislation.gov.uk text is not fully revised, so we checked it against the Government Actuary's Department (GAD) guidance and the Federation. GAD's guidance says that in most cases a quarter of the pension can be commuted, and with 25 to 29 years' service the lump sum is capped at 2.25 times the gross pension. Notice of commutation can be given no earlier than 4 months before retirement (reg B7(5)). Regulation B10 adds that commutation and allocation together cannot reduce the pension below two-thirds of its full rate.
2006 scheme. The ordinary pension has two parts by law: an annual pension of 1/70th of final pensionable pay per year and a lump sum of 4/70ths per year (reg 28(1)). That is four times the pension, paid automatically. The regulations we read contain no option to commute more pension for extra cash; what they allow is the reverse, giving up some or all of the lump sum for extra pension at actuarial rates, with notice given no earlier than four months before retirement (reg 37). Several older pages, including some on this site, say the 2006 scheme allows further commutation at 12:1. We could not find that in the regulations.
2015 scheme. Regulation 124 is unusually precise: for every £1 a year of pension given up you "must be paid a lump sum of £12"; the lump sum may not be more than 25% of the cash value of the pension as advised by the scheme actuary; and you cannot exchange so much that it becomes a scheme chargeable payment under the Finance Act 2004. The option must be exercised before the first payment of pension.
The 20:1 valuation and the 25% limit, explained
For a defined benefit pension HMRC values each £1 a year of pension at £20 (the "relevant valuation factor" in section 276 of the Finance Act 2004). PTM063240 sets the applicable amount as:
Applicable amount = (A + 20 x C) / 4, where A is the lump sum and C is the pension payable in the first 12 months after commutation (D, a deduction for certain pension credits from divorce, is ignored here).
Where pension is commuted at a factor f, HMRC gives a direct shortcut for the most that can be paid: 20 x f x g / (20 + 3 x f), where g is the pension before commutation. The share of the pension you give up to get it is 20 / (20 + 3 x f).
Two consequences follow. At a factor of exactly 20, the HMRC limit is reached by giving up exactly a quarter of the pension. Above 20, giving up a quarter produces more cash than HMRC allows tax-free, which is why GAD's 2023 guidance warned that "a member with a commutation factor above 20 commutes 25% of their pension" could breach the limit. Below 20, as with the 2015 scheme's 12, you can give up more than a quarter of the pension before reaching HMRC's limit.
Applying GAD's 1987 factors from 21 May 2026 (age in years and 0 months on the day the pension starts):
| Age on the day pension starts | GAD factor from 21 May 2026 | Lump sum if a quarter is commuted | Most HMRC allows tax-free | Share of pension to give up for that |
|---|---|---|---|---|
| 50 years 0 months | 25.55 | 6.39 times the pension | 5.29 times the pension | 20.7% |
| 52 years 0 months | 24.69 | 6.17 times the pension | 5.25 times the pension | 21.3% |
| 55 years 0 months | 23.22 | 5.80 times the pension | 5.18 times the pension | 22.3% |
| 60 years 0 months | 20.61 | 5.15 times the pension | 5.04 times the pension | 24.4% |
Up to about age 60 the GAD factor is above 20, so HMRC's limit, not the scheme's quarter, is what caps the tax-free lump sum. The 2.25 times cap, where it applies, is lower still. For the 2015 scheme at £12 the shortcut gives 4.29 times the pension for giving up 35.7% of it, which matches the NPCC's statement that the maximum is limited to 35.7% of your annual pension.
Illustrative examples: one officer in each scheme
Pension before commutation £30,000 a year; GAD factor at 52 years 0 months from 21 May 2026: 24.69.
Scheme maximum. A quarter of the pension, £7,500, times 24.69 = £185,175.
HMRC maximum. 20 x 24.69 x £30,000 / (20 + 3 x 24.69) = £157,478. To get it the officer gives up £6,378 a year, keeping £23,622. Check: (£23,622 x 20 + £157,478) / 4 = £157,478.
So commuting the full quarter would pay £27,697 more than the tax-free limit. That difference is the amount HMRC would not treat as a pension commencement lump sum (see over the limit). GAD's 2023 guidance worked the same case at the old factor of 25.9 and reached £159,058, which our formula reproduces (£159,058).
Same pension of £30,000. With fewer than 30 years the 2.25 times cap in reg B7(4)(b) applies, so the lump sum is at most £67,500. At GAD's factor of 25.55 that costs £2,642 a year of pension. This is the case GAD itself uses in its 21 May 2026 letter. HMRC's limit (well above £67,500) does not bite.
2015 scheme. A pension of £20,000. The most that can be taken is £85,714, giving up £7,143 a year (35.7%), at £12 for each £1. Regulation 124(5) stops the scheme going further.
2006 scheme. A pension of £20,000 comes with an automatic lump sum of £80,000. HMRC's applicable amount is (£80,000 + 20 x £20,000) / 4 = £120,000, so the whole lump sum is within the limit.
Real quotes combine these parts and use your exact age in years and months. If you want to try different amounts, the tool below is the quickest way.
Our free police pension commutation calculator lets you type in the factor from your administrator's quote and see the lump sum, the pension given up and a break-even age. It does not apply HMRC's limit or the 1987 2.25 times cap, so compare its answer with the formula above.
The May 2026 factor change and the tax-free maximum
On 19 May 2026 HM Treasury raised the SCAPE discount rate used for public service pensions from CPI + 1.7% to CPI + 2.0% (GOV.UK, Government Actuary's Department, 16 June 2026). GAD issued new 1987 commutation factors on 21 May 2026, in force immediately, and the NPCC's FAQs say they apply to 1987 members with a retirement date on or after 21 May 2026. Our page on the 2026 lump sum changes covers the background, and why quotes were paused covers the pause.
The tax angle is less obvious. The NPCC put the fall in 1987 lump sums at around 5%. That is roughly what happens to a lump sum taken at the scheme's quarter: in our example at age 52 the scheme maximum falls by 4.7%. But where HMRC's limit is what caps the tax-free lump sum, the formula is much less sensitive to the factor: the tax-free maximum falls only from £159,058 to £157,478, about 1.0%. The Police Federation's 27 May 2026 article said the same: if you choose the maximum tax-free option, the effect is about 1%. The difference is that, at a lower factor, you give up a little more pension to reach the same tax-free cash.
The 2006 automatic lump sum and the 2015 12:1 rate did not change. The GAD workbook shows other police factors were also reissued: the 2006 factors for exchanging lump sum for pension (7 July 2026) and the 2015 early payment reduction factors (implemented 1 August 2026). Those affect pension amounts, not the tax rules.
The lump sum allowance (£268,275) and the LSDBA (£1,073,100)
From 6 April 2024 the lifetime allowance was replaced by two lump sum allowances (GOV.UK; PTM171000 and PTM172000):
- Lump sum allowance (LSA): £268,275. Pension commencement lump sums, the tax-free part of an uncrystallised funds pension lump sum and stand-alone lump sums count towards it.
- Lump sum and death benefit allowance (LSDBA): £1,073,100. Everything that counts towards the LSA, plus serious ill-health lump sums and most lump sum death benefits.
- Higher amounts apply only if you hold a protection: primary, enhanced, fixed (2012, 2014, 2016) or individual (2014, 2016).
The allowances are personal and cover all your registered pensions, not just the police one: AVCs, a pension from a later job, a SIPP. HMRC says the excess over your available allowance is taxed as income at your marginal rate, and that the scheme administrator may ask you how much you have used. If you do not tell them, PTM171000 says they will assume you have none left.
That is why administrators send a declaration form. The Metropolitan Police Pension Scheme's form, for example, asks about protections, transitional certificates, pensions in payment before 6 April 2006, every benefit crystallisation event from 6 April 2006 to 5 April 2024 as a percentage of the lifetime allowance, and other lump sums due, and says benefits cannot be paid until it is completed. Find old benefit statements early.
One police-specific point from GOV.UK: people in certain occupations who can take benefits before 50 may have a reduced allowance, but "your lump sum allowance ... is not reduced if you're in a pension scheme for uniformed services", which it says includes the police.
If you took a pension before April 2024, or have two police pensions
Many readers already have a police pension in payment and are now taking a second benefit: a 2015 scheme pension, a pension from a civilian job, or AVCs. For the first lump sum after 6 April 2024, HMRC's standard transitional calculation takes 25% of the lifetime allowance you had used by 5 April 2024 off your lump sum allowance (PTM174100, Finance Act 2024 Schedule 9 para 125).
An officer retired in 2020 with a pension after commutation of £25,000 and a lump sum of £120,000. Under the old rules a defined benefit pension coming into payment was valued at 20 times the pension, so the lifetime allowance used was £25,000 x 20 + £120,000 = £620,000. The standard calculation deducts 25% of that, £155,000, leaving a lump sum allowance of £113,275 for later lump sums. Your scheme's benefit crystallisation statement gives the real percentage used.
Transitional tax-free amount certificate. If you took less than 25% of your pre-April 2024 benefits tax-free and have complete evidence, you can ask a scheme for a certificate showing what you actually took, which replaces the 25% assumption (PTM174300). It must be issued before you become entitled to your next relevant lump sum. On simple arithmetic this can matter for police pensions: a 2006 scheme lump sum of four times the pension is 4 / (4 + 20), about 16.7%, of the value crystallised, and a 1987 lump sum under the 2.25 times cap is also below 25%. Whether a certificate helps you depends on your records and what else you will take, so ask the administrator or an FCA-authorised adviser.
Pensions in payment before 6 April 2006. HMRC treats these differently: where there was no benefit crystallisation event between 5 April 2006 and 5 April 2024, a deemed amount under Schedule 36 Finance Act 2004 is used (PTM174300). The Met form asks about exactly this. Ask your administrator to work it out.
Are police officers anywhere near the lump sum allowance?
From the police pension alone, most are not. Using the formulas above, the most a scheme can pay tax-free reaches the full £268,275 only at these pensions (before commutation):
- 2015 scheme: about £62,598 a year (at 12:1, taking the maximum).
- 2006 scheme: about £67,069 a year (four times the pension).
- 1987 scheme at 52: about £51,107 a year (taking HMRC's maximum at GAD's factor of 24.69).
These are illustrative arithmetic, not statistics about officers. People who can get closer are senior officers with large final salary pensions, officers with several pensions (police plus AVCs, a SIPP or a second career), and anyone who used lifetime allowance before 2024. Because the allowance is shared across everything you take, the order and timing of lump sums from different schemes can matter. That is a question for an FCA-authorised adviser rather than a calculator.
What happens if a lump sum goes over a limit
There are two different limits, and two different results.
- Over your lump sum allowance. HMRC says the excess is subject to income tax at your marginal rate, deducted by the scheme before you get it (PTM171000; GOV.UK). It is still an authorised payment.
- Over the 25% applicable amount. The excess is not a pension commencement lump sum. PTM063210 says it may still be authorised under other rules (for example certain error payments), but if not it is an unauthorised member payment. PTM131000 lists the charges: a 40% unauthorised payments charge, a 15% unauthorised payments surcharge where a threshold is reached, and a scheme sanction charge on the scheme administrator of 40%, reducible to 15%.
For police pensions this is not theoretical. HMRC's guidance on the McCloud remedy lists, among common unauthorised payments, cases "where the maximum lump sum payable under the scheme rules is more than the maximum permitted pension commencement lump sum", and GAD's July 2025 note describes unauthorised payment charges "levied on lump sum at retirement" for police and firefighter pensioners. In the 2015 scheme regulation 124(5) prevents it. In the 1987 scheme GAD's guidance shows how to commute less to stay inside the limit. Ask your administrator how they present the options and what tax, if any, would be deducted, before you return the forms.
Administrators calculate within the rules, but whether to take a taxed excess, and how it fits with your other pensions and income, is your decision. If the sums are large, speak to an FCA-authorised financial adviser before you choose. Commutation cannot be reversed once the pension is in payment.
Ill-health retirement, serious ill health and small pensions
- Ill-health pensions. Commutation applies to ill-health pensions in the 1987 scheme (reg B7(1)) and the 2015 scheme (reg 124(1)), and HMRC allows a pension commencement lump sum before normal minimum pension age where the ill-health condition is met (PTM063210). The ill-health process itself is covered in our ill-health retirement guide and the injury and ill-health hub.
- Serious ill-health lump sums. HMRC allows a scheme to pay all of a member's uncrystallised benefits as a lump sum where a registered medical practitioner confirms life expectancy of less than a year (PTM063400). It counts towards the LSDBA, not the LSA. In the police regulations we read, the only whole-pension serious ill-health commutation is for pension credit members (ex-spouses or civil partners holding a pension credit): 2006 reg 62 and 2015 reg 132. We found no equivalent option for officers themselves; ask your administrator if this arises.
- Small pensions. A whole pension can be commuted as a trivial commutation lump sum only if all your pension rights in registered schemes are worth no more than £30,000 and other conditions are met (PTM063500; 2015 reg 203; 2006 reg 38; 1987 reg B8). It is not wholly tax-free.
The McCloud remedy and your lump sum
For service from 1 April 2015 to 31 March 2022, eligible members choose at retirement whether that period is calculated under legacy or 2015 rules (Public Service Pensions and Judicial Offices Act 2022, section 10). The choice changes the lump sum as well as the pension: legacy 1987 rules mean commutation at GAD's factors, legacy 2006 rules mean the automatic lump sum, and 2015 rules mean 12:1. The Police Pensions (Remediable Service) Regulations 2023 set the process: you tell the scheme you intend to claim 6 to 3 months before, receive a Remediable Service Statement, and choose within 12 weeks; a choice can be revoked up to 10 working days before benefits are payable (reg 13).
For transition members, Schedule 2 para 40 of the 2015 regulations includes 2015 scheme service when working out the 1987 lump sum limit, so 2015 service can take you to the 30 years that lifts the 2.25 times cap.
Officers who retired during the remedy period (immediate choice members) are in a different position. HMRC's guidance says the remedy may change whether an earlier lump sum was an unauthorised payment, giving refunds, compensation or, for 2019/20 to 2021/22, higher charges, and GAD describes an offsetting process for top-up lump sums under the Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) Regulations 2025. Your administrator handles the calculation. See the McCloud remedy explained and our McCloud remedy calculator.
When the lump sum is paid
- 1987 scheme. Regulation L3(6) (legislation.gov.uk text, not fully revised) says a lump sum becomes payable as soon as entitlement arises and is "paid forthwith in one sum". The Home Office 1987 members' guide says lump sums are "normally paid on the first working day after retirement". If you leave before 55 and the pension starts before increases are payable, GAD's guidance splits the lump sum into two instalments, the second at 55.
- 2006 scheme. Regulation 82(5): "a lump sum payable upon the retirement of a regular police officer shall be paid within three months from the date of retirement".
- 2015 scheme. We did not find a specific payment deadline in the 2015 regulations. The pension is payable for each month from your last day of service (reg 92(4)).
- In practice. LPPA, which administers several forces' schemes, says you should receive the lump sum before your first pension payment, usually at the end of the month of your retirement date, or the following month if forms arrive after the payroll cut-off. HMRC's window for a tax-free lump sum is 6 months before to 12 months after entitlement.
The biggest delays come from missing forms, including the lump sum allowance declaration. Our 12-month retirement checklist sets out when to ask for each document, and your first year in retirement covers the first payslip and tax code.
Inheritance tax and pensions from April 2027
GOV.UK's policy paper (26 November 2025) says that from 6 April 2027 most unused pension funds and death benefits will be brought into the value of an estate for inheritance tax, with personal representatives responsible for reporting and paying. The Finance Act 2026, which received Royal Assent on 18 March 2026, contains the legislation. The July 2025 policy paper says death in service benefits payable from a registered pension scheme and "dependant's scheme pensions from a defined benefit arrangement" are excluded, and the existing exemptions for a surviving spouse or civil partner and for charities are kept.
For police pensions that means, on GOV.UK's description: survivor pensions are dependants' scheme pensions from a defined benefit arrangement and are outside the change; death in service lump sums are outside it. A lump sum you have already received is simply part of your estate, as savings always were. We could not confirm how every lump sum death benefit payable after retirement from the police schemes will be treated; ask the administrator, and see our survivor benefits guide.
Step by step: checking the tax on your lump sum before you sign
- Collect your history. Old benefit crystallisation statements, any HMRC protection certificate, and details of other pensions. You will need them for the lump sum allowance declaration.
- Get the quote split by scheme. Ask for the pension before commutation, the factor or rate, and the lump sum options for each part (1987, 2006, 2015, and the remedy period under both options).
- Check the scheme limit. A quarter, or 2.25 times the pension in the 1987 scheme; four times in the 2006 scheme; 12:1 and the HMRC limit in the 2015 scheme.
- Check the HMRC limit. Use 20 x f x g / (20 + 3 x f), or ask the administrator to show the tax-free maximum.
- Check your allowance. £268,275 less anything used. If you had pensions before April 2024, work out the standard deduction and decide whether to apply for a transitional certificate before taking the lump sum.
- Ask about any excess. If any amount would not be tax-free, ask how much tax would be deducted and whether a smaller commutation avoids it.
- Decide, then return the forms on time. 1987 notice no earlier than 4 months before retirement; 2006 exchange notice no earlier than 4 months before; 2015 option before the first payment.
- Check the payment letter. Compare the lump sum and pension with the quote and query differences straight away.
What people get wrong about police lump sum tax
What to ask, and who to ask
| Ask | Who | Why it matters |
|---|---|---|
| Your pension before commutation in each scheme, and the factor or rate used for each part | Pension administrator | 1987, 2006 and 2015 parts follow different rules and are tested separately |
| The maximum lump sum under the scheme rules and the maximum tax-free amount, shown separately | Pension administrator | In the 1987 scheme the scheme maximum can exceed what HMRC allows tax-free |
| How the administrator handles a 1987 commutation above the HMRC limit, and any tax that would be deducted | Pension administrator | HMRC treats a lump sum above the permitted maximum as an unauthorised payment unless an exception applies |
| How much lump sum allowance you have used, and whether you hold a protection or a transitional tax-free amount certificate | You (from your own records), earlier schemes, HMRC's online service for protections | The administrator assumes you have no allowance left if you do not provide this (PTM171000) |
| Whether your 2.25 times cap applies, and how 2015 scheme service counts towards the 30 years | Pension administrator | Schedule 2 para 40 of the 2015 regulations counts 2015 service towards the 1987 limit |
| When the lump sum and first pension payment will be made | Pension administrator | Payroll cut-offs can move the first payment into the next month |
| For McCloud remedy service: the lump sum under legacy and under 2015 rules on your Remediable Service Statement | Pension administrator | The choice changes how that period's lump sum is worked out |
| Whether a large or unusual lump sum decision needs regulated advice | An FCA-authorised financial adviser; MoneyHelper for free guidance | Commutation cannot be reversed once the pension is in payment |
Who can help: your pension administrator for figures; your Police Federation or staff association representative for scheme disputes; HMRC for your tax code and protections; MoneyHelper for free, impartial guidance (Pension Wise itself is for defined contribution pensions only); and an FCA-authorised financial adviser for a personal recommendation. PolicePay is not FCA-authorised and this page is information, not advice.
What we could not verify, and how we handled it
- A fully revised 1987 text. legislation.gov.uk does not hold the 1987 regulations in fully revised form. We relied on GAD's 2023 guidance and 21 May 2026 letter and the Police Federation for the current commutation limits.
- How each administrator handles a 1987 excess. GAD shows how to stay within HMRC's limit; HMRC shows the charges if not. Whether your administrator will pay an excess, and how, we could not confirm. Ask.
- The scheme actuary's "cash value" in 2015 reg 124(4). We used the NPCC's 35.7% figure and HMRC's formula, which agree; the actuary's own valuation is not published in the regulation.
- 2015 lump sum payment deadline. Not found in the 2015 regulations; we give LPPA's practice.
- Serious ill-health commutation for officers. Found only for pension credit members in the regulations we read.
- Inheritance tax on post-retirement lump sum death benefits. GOV.UK sets out the exclusions; we could not confirm the treatment of each police scheme benefit.
- Converting a lifetime allowance percentage into money. HMRC says schemes may do this; our example uses the old 20 times valuation instead of a percentage.
- Scotland and Northern Ireland. This page covers England and Wales. Police Scotland's schemes are run by the Scottish Public Pensions Agency, which removed its own 2.25 times cap from 1 April 2022, and use separate factors.
Frequently Asked Questions
Is the police pension lump sum tax-free?
Usually, yes. It is paid as a pension commencement lump sum, which is tax-free up to the permitted maximum: broadly 25% of the value of the benefits coming into payment, and no more than your remaining lump sum allowance (£268,275 for most people). Any part above that is not tax-free. The 1987 scheme is where this most often matters.
How much tax-free cash can I take from my police pension?
It depends on the scheme. The 2006 scheme pays an automatic lump sum of four times the pension. The 2015 scheme pays £12 for every £1 of pension given up, which the NPCC says works out at giving up at most 35.7% of the pension. The 1987 scheme lets you commute up to a quarter at GAD's age-related factors, but HMRC's limit is often lower.
What is the lump sum allowance for a police pension?
The lump sum allowance is an HMRC limit, not a police scheme rule. Since 6 April 2024 it is £268,275 for most people across all their registered pensions, with a separate lump sum and death benefit allowance of £1,073,100. Tax-free lump sums from your police pension count towards both. Lump sums above your remaining allowance are taxed as income.
Is a police pension lump sum taxable if it is over 25%?
The part above the permitted maximum is not a pension commencement lump sum. HMRC's manual says it may be authorised under other rules, but if not it is an unauthorised payment, with a 40% unauthorised payments charge, possibly a 15% surcharge, and a scheme sanction charge on the scheme. Ask your administrator before you sign.
What is the 20:1 rule for police pension lump sums?
For defined benefit schemes HMRC values the pension at 20 times the annual amount (section 276 Finance Act 2004). The tax-free maximum is a quarter of the lump sum plus 20 times the pension left after commuting. HMRC's manual gives a shortcut: 20 times the factor times the pension, divided by 20 plus three times the factor.
Why is my 1987 police pension lump sum restricted to 2.25 times my pension?
Regulation B7(4)(b) of the 1987 regulations limits the lump sum to 2.25 times the pension where you retire with an ordinary pension on less than 30 years' service, apart from specified cases. GAD's 21 May 2026 example still applies it, and the Police Federation says the cap remains despite its lobbying. 2015 scheme service counts towards the 30 years.
Did the May 2026 change reduce the tax-free lump sum?
For 1987 scheme members retiring on or after 21 May 2026, GAD's new factors are lower. But where HMRC's limit is what caps the lump sum, the effect on the maximum tax-free amount is small: in our illustration at age 52 it is about 1.0%, close to the 1% the Police Federation quoted. The 2006 automatic lump sum and the 2015 12:1 rate did not change.
Are police officers likely to exceed the lump sum allowance?
From the police pension alone, only those with large pensions. On our arithmetic the most a scheme can pay tax-free reaches £268,275 at a pension before commutation of about £62,598 in the 2015 scheme, £67,069 in the 2006 scheme and £51,107 in the 1987 scheme at age 52. Other pensions, and benefits taken before April 2024, use up the same allowance.
Does a police pension taken before April 2024 reduce my lump sum allowance?
Yes, if you take another tax-free lump sum later. Under HMRC's standard transitional calculation, 25% of the lifetime allowance you had used by 5 April 2024 comes off your lump sum allowance. If you took less than 25% of those benefits tax-free and can prove it, a transitional tax-free amount certificate can give a higher figure, but it must be in place before your next lump sum.
When is the police pension lump sum paid?
The 1987 regulations say a lump sum is paid as soon as entitlement arises, and the Home Office 1987 guide says normally on the first working day after retirement. The 2006 regulations say within three months of retirement (reg 82(5)). LPPA, one administrator, says you should receive it before your first monthly payment, usually at the end of the month you retire.
Is the police pension lump sum subject to inheritance tax from 2027?
Once paid to you, a lump sum is your money and part of your estate like any other savings. Separately, from 6 April 2027 most unused pension funds and death benefits come into inheritance tax, but GOV.UK says death in service benefits and dependants' scheme pensions from a defined benefit scheme are excluded. Survivor pensions from the police schemes are dependants' pensions.
Can I use a police pension commutation calculator for the tax-free amount?
Yes, as a first check. Our commutation calculator lets you enter the factor from your administrator's quote and see the lump sum, the pension given up and the break-even age. It does not apply HMRC's 25% limit or the 1987 2.25 times cap, so check its result against the formula on this page and your quote.
Sources and how we checked them
Every factual claim on this page was written from the sources below, read on 1 October 2026. Rules and figures change, so check the source for the date you are reading this. Where we could not confirm something from an official or independent source, the page says so rather than guessing. Spotted something out of date? See our corrections policy.
- Finance Act 2004, Schedule 29, paragraphs 1 to 3 (pension commencement lump sum), latest version (legislation.gov.uk) — conditions for a tax-free lump sum and the permitted maximum (accessed 1 October 2026)
- HMRC Pensions Tax Manual PTM063210 and PTM063230: PCLS payment conditions and the permitted maximum — permitted maximum is the lower of the applicable amount, available LSA and available LSDBA; 6 months before to 12 months after; excess not tax-free (accessed 1 October 2026)
- HMRC Pensions Tax Manual PTM063240: applicable amount — (A + 20C - D) / 4 for a defined benefit scheme pension; the 20fg / (20 + 3f) equation where pension is commuted (accessed 1 October 2026)
- GOV.UK: Tax on your private pension, lump sum allowance — £268,275 and £1,073,100; excess taxed as income; uniformed services not reduced for taking benefits before 50 (accessed 1 October 2026)
- HMRC Pensions Tax Manual PTM171000 and PTM172000: lump sum allowance and lump sum and death benefit allowance — what counts; protections; the administrator assumes no allowance if you give no information (accessed 1 October 2026)
- HMRC Pensions Tax Manual PTM174100 and PTM174300: transitional rules and transitional tax-free amount certificates — 25% of the lifetime allowance previously used is deducted; certificates and pre-2006 pensions (accessed 1 October 2026)
- HMRC Pensions Tax Manual PTM131000: unauthorised payments — 40% charge, 15% surcharge, scheme sanction charge (accessed 1 October 2026)
- Police Pensions Regulations 1987 (SI 1987/257), regulations B7, B10 and L3 (legislation.gov.uk, not fully revised) — a quarter of the pension; 2.25 times cap under 30 years; notice of commutation; GAD tables; lump sum paid forthwith (accessed 1 October 2026)
- Police Pensions Regulations 2006 (SI 2006/3415), regulations 28, 37 and 82 — automatic lump sum of 4/70ths per year; exchange of lump sum for pension; lump sum paid within three months (accessed 1 October 2026)
- Police Pensions Regulations 2015 (SI 2015/445), regulation 124 and Schedule 2 paragraph 40 — £12 for every £1; 25% of the cash value; no scheme chargeable payment; 2015 service counts for the 1987 lump sum limit (accessed 1 October 2026)
- Government Actuary's Department: 1987 Scheme commutation on retirement, factor tables, letter of 21 May 2026 (copy hosted by Warwickshire Police Federation) — new Table 1 factors in force immediately; SCAPE CPI + 2%; 2.25 times example at age 50 (accessed 1 October 2026)
- Government Actuary's Department: 1987 Scheme commutation guidance, 3 April 2023 — previous factors; the 25% HMRC limit can be breached with factors above 20; two-instalment lump sums before 55 (accessed 1 October 2026)
- GAD Factor Guidance Hub: Police (England and Wales) consolidated factor workbooks — workbook 2026-03 (4 September 2026): issue and implementation dates for each factor table (accessed 1 October 2026)
- NPCC: Police Pension Scheme FAQs on the change to the SCAPE discount rate, version 1, 20 May 2026 (copy hosted by Warwickshire Police Federation) — 2015 lump sum at 12:1 limited to 35.7% of pension; 2006 standard lump sum not affected; around 5% lower 1987 lump sums (accessed 1 October 2026)
- Police Federation of England and Wales: Your 1987 Police Pension Scheme lump sum, what's changed (27 May 2026) — about 1% where the maximum tax-free option is taken; 2006 and 2015 rates unchanged (accessed 1 October 2026)
- Police Federation of England and Wales: commutation cap — 2.25 times cap for retirement on 25 to 29 years across the schemes; chief constable discretion rarely used (accessed 1 October 2026)
- Police Federation of England and Wales: actuarial factor update (17 July 2026) — 2006 inverse commutation factors published and implemented on 7 July 2026 (accessed 1 October 2026)
- Home Office: The Police Pension Scheme 1987 members' guide (2006) — lump sums normally paid on the first working day after retirement; commutation notice; trivial commutation (accessed 1 October 2026)
- LPPA: pension lump sum — lump sum usually paid before the first monthly payment; 2006 automatic lump sum of four times the pension (accessed 1 October 2026)
- Metropolitan Police Pension Scheme (Equiniti): lump sum allowance declaration form — an administrator's declaration of protections, certificates and earlier crystallisations; benefits not paid until it is returned (accessed 1 October 2026)
- HMRC: how unauthorised payments are affected by the public service pensions remedy (updated 2 May 2025) — excess lump sums in the remedy period; refunds and increased charges (accessed 1 October 2026)
- Government Actuary's Department: navigating McCloud remedy, unauthorised payment charges (25 July 2025) — police and fire pensioners; top-up lump sums; offsetting under the 2025 tax regulations (accessed 1 October 2026)
- GOV.UK policy paper: Inheritance Tax, unused pension funds and death benefits (26 November 2025) and Finance Act 2026 — from 6 April 2027; death in service benefits excluded; dependants' scheme pensions from a defined benefit arrangement excluded (July 2025 policy paper) (accessed 1 October 2026)
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PolicePay.co.uk is an independent reference site. It is not authorised by the Financial Conduct Authority and this page is general information, not financial, tax or pension advice, and it cannot consider your personal circumstances. Pension and tax rules change and depend on your scheme, service and tax position: check your pension administrator's statement and, where sums are large or decisions hard to reverse, speak to an FCA-authorised adviser, Pension Wise (free guidance for defined contribution pensions only) or HMRC. Details apply to England and Wales unless stated. Details are as checked on 1 October 2026.