To calculate the maximum lump sum that a member can take at retirement, all three of the limits shown below should be considered, namely:

• Lump sums cannot be more than 25% of the cash value of the pension, as advised by the scheme actuary
• Lump sums cannot be such that they result in a 'scheme chargeable payment'
• The post commutation pension cannot be less than the member's Guaranteed Minimum Pension (GMP)

The 'cash value' of the pension at retirement is based on the cash equivalent value that would be calculated for the purpose of pension sharing on divorce. As such, the commutation lump sum is limited to 25% of the member's cash equivalent pension value when calculated on unisex terms.

The factors set out in Table 2 refer to the factors for determining the cash equivalent pension value.

For a given amount of pension income, the cash equivalent value varies by the member's age and form of retirement. Younger retiring members have a larger cash equivalent value than older retiring members, which results in a higher commutation limit for those who retire at younger ages.

A scheme chargeable payment occurs when an unauthorised payment is made. A retirement commutation lump sum will be considered as an unauthorised payment if it exceeds the lower of:

1. the member's available Lump Sum Allowance (LSA) (references to LSA should be to 25% of the Lifetime Allowance for retirements occurring before 6 April 2023), and
2. 25% of HM Revenue & Customs (HMRC)'s assessment of the value of the member's crystallised benefits at retirement.

The limit shown under (1) will depend on the member's available LSA at retirement and should take into account any LSA protection that the member is entitled to.

Any retirement lump sums received from other registered pension schemes (including the 1988 and 2006 police pension schemes) need to be taken into account when assessing the member's available LSA.

Administrators should consult with HMRC's Pensions Tax Manual in order to determine the maximum 2015 Scheme lump sum that applies under this limit for members with benefits in both the 2015 Scheme and a pre-2015 scheme, or any other registered pension scheme.

The limit under (2) prevents the lump sum from being more than 25% of the value of crystallised benefits at retirement, assessed using the HMRC factor of £20 for every £1 of pension. The maximum lump sum available under this limit can be expressed using the following formula, with 'Y' being the proportion commuted and 'P' being the pre-commutation pension at retirement:

Lump Sum = 25% × (Lump Sum + HMRC value of post-commutation pension)

This can be written as

12 × Y × P = 25% × (12 × Y × P + 20 × (1 - Y) × P)

Which can be rearranged to give

Y = 5 / 14 = 35.7% (of P)

Please note that this is based on GAD's understanding of pension tax rules. It is the administrator's responsibility to ensure that they comply with all relevant taxation legislation and HMRC guidance. If there is any doubt, queries should be directed to HMRC.

A retiree is not allowed to commute pension to such an extent that their post-commutation pension is lower than their GMP in the 2015 Scheme.

(GMP in the 2015 Scheme means any GMP rights transferred into the 2015 Scheme. Administrators should ignore any GMP attributable to accrual in one of the pre-2015 police pension schemes, unless those rights were subsequently transferred into the 2015 Scheme.)

Administrators should compare the member's planned post-commutation pension against their GMP. If the accrued GMP is larger than 75% of the post commutation pension, a bespoke calculation, not covered by this guidance, is required.