87 Pension GAD & Commutation estimator
Commutation for the 1987 Police Pension Scheme
The 1987 Police Pension Scheme allows individuals claiming their pension the opportunity to commute a proportion of their pension (up to a maximum of 25%) in return for a lump sum. This applies to those receiving and ordinary, short service, ill-health or deferred pension.
The value of the lump sum is determined by the age of the individual at the date of their retirement, and is calculated by using the Government Actuarial Department (GAD) Table.
In most cases the maximum that can be commuted is 25% of the value of the pension. However for officers who retire with at least 25, but less than 30 years’ service, and who are under 55 years of age, then the maximum value of the commutation is two and a quarter times the full amount of the gross annual pension.
Although there is a maximum amount of commutation an officer can elect to take any amount below the maximum
The lump sum that is awarded will be free of taxation provided it remains below the total value of benefits crystallised, and the officers pension savings do not exceed HMRC’s Lifetime Allowance.
Currently the maximum commutation that can be taken without incurring taxation is where an officer’s commutation factor is 20. If an officer with a higher commutation factor than 20 elects to take maximum commutation, then the commutation relating to the first 20 points of the factor are tax free, and anything above this level becomes taxable. Tax can be avoided by electing to take a lower commutation at a maximum of a commutation factor of 20.
To work out the maximum value of your commutation, before any tax is taken into account. Divide the value of your annual pension (before commutation) by 4. Then multiply this figure by the commutation factor.
As an example:
An officer retires at age 55 and no months (This gives them a commutation factor of 21.00
They have a maximum pension of £24,000
25% of this is £6,000
This is the maximum that can be commuted, and would leave an annual pension of £18,000
The commutation before any tax is taken would be £6,000 x 21 = £126,000
If the officer elects to take this maximum then they would pay tax on anything above the amount allowable within the HMRC limit.
Alternatively to avoid tax they can elect to take the maximum tax free lump sum, and commute slightly less of their annual pension.
There are 3 downloads on this page.
A commutation estimator which you can use to give you an idea of how much commutation you can take, and how much pension you would then have remaining.
The GAD table in both table and list format.
The Government Actuary’s Department Guidance on commutation within the 1987 Police Pension Scheme.