A member of the classic section of the PCSPS(NI) who is about to be paid a pension and lump sum can give up part (or all) of the lump sum in exchange for an increase in their pension.

Scheme administrators should ensure that members using the inverse commutation option meet the eligibility requirements for doing so which are set out in the scheme rules.

Members exercising the inverse commutation option can do so in two different ways. The member can:

1. give up part (or all) of their lump sum and increase their pension only. The widow or widower's pension remains unchanged; or
2. give up part (or all) of their lump sum and increase both their pension and the pension that would be payable to their widow or widower.

If a member chooses to give up part (or all) of their lump sum as described in (2), this provides an increased widow or widower's pension for the person to whom the member is married or in a civil partnership with on the day before the member's pension benefits become payable. It does not increase any children's pension or adult dependant's pension. The member cannot take this option if they are not married or in a civil partnership. If the member marries or enters into a civil partnership again after exercising the option, the amount of pension which would then be payable to their new spouse or civil partner in event of the member's death is not increased.

The member must give up their lump sum in multiples of £100 unless they are giving up all of it.

Members cannot opt to increase only the widow's/widower's pension.

The increase in the member's pension for each £100 of lump sum given up (or amount surrendered) should be determined as follows:

Increase in member's pension = Amount surrendered x (Factor / 100)

Where:

Amount surrendered is the cash lump sum that is being exchanged for annual pension at the calculation date.

Factor is based on the member's actual age (complete years and months, ignoring part months) at the calculation date. The factor is taken from table P1IC1 and is expressed as an amount of annual pension to be awarded for every £100 of lump sum surrendered. The factor should be chosen from the appropriate column in the table:

1. Where the lump sum is surrendered in exchange for an increase to the member's pension only, columns (1) and (2) should be used.
2. Where the lump sum is surrendered in exchange for an increase to both the member's pension and widow/widower's pension, columns (3) and (4) should be used. When the member dies, half of the increase to the member's pension is payable to the widow/widower.

There are scenarios defined in the scheme rules (unauthorised lump sum payment and conversion of retirement lump sum for a pension credit member) where the member can only surrender the lump sum in exchange for an increase to the member's pension. Therefore, columns (3) and (4) of Table P1IC1 should not be used for such cases.

An adjustment to the general formula above is required if the member is more than 10 years older than their spouse or civil partner. The increase in the member's pension (as calculated above) is reduced by Age_Reduction for each complete year in excess of 10 years that the member is older than the spouse or civil partner. Age_Reduction is the percentage reduction set out in Table P1IC2.

The extra pension which the member receives as a result of inverse commutation should have the same deemed date for pension increases as the lump sum which was surrendered. The example below illustrates how this would work for a member who retires before the age of 55.

1. The member leaves active service at age 40 with a lump sum of £10,000
2. The member retires at age 51. They are entitled to a lump sum of £10,000 at retirement and a 'second bite' lump sum at age 55 of £3,000 (in respect of the pension increases between 40 and 51).
3. At retirement if they choose to inverse commute some of their lump sum then the extra pension which they receive would be increased at age 55 to allow for the accumulated pension increases since they originally left service at age 40. They would not receive the 'second bite' lump sum at age 55 in respect of the lump sum that they have inverse commuted