Commutation

When you retire you may be able to commute (exchange) some of your pension for a retirement lump sum. You can exchange part of the following types of pensions:

• ordinary pension
• short service pension
• ill health pension
• deferred pension

Within limits, you can choose to commute up to ¼ of your pension. How much lump sum you will receive depends on your age and how much pension you commute. Usually, the younger you are when your pension is paid the bigger any lump sum will be.

• You cannot give up any part of an injury pension
• If you leave voluntarily before you have 30 years' service in the PPS, you cannot commute as much pension to lump sum
• If you claim your pension from age 50 with less than 30 years' service, the maximum lump sum you can take 2.25 times your annual pension

Tax

You may have to pay tax on your retirement lump sum. This is because some of the commutation factors are higher than 20:1 which means the lump sum may exceed the limit set by HMRC, which is currently 25% of the total value of benefits.

If the commuted lump sum exceeds the HMRC limit the amount in excess of that limit will be subject to a 40% tax charge.

You are encouraged to seek independent financial advice before making a decision about commutation. Pensions Services will notify you of any tax that you may have to pay on your retirement lump sum.