Commutation

You can give up part of your annual pension for a one-off tax free cash lump sum.

You will receive £12 lump sum for each £1 of pension given up and can take up to 25% of the Capital Value of your pension benefits.

If you pay in-house AVCs you may elect to take up to 100% of your accumulated AVC fund as a tax free lump sum at the same time as your LGPS pension benefits, provided when added to the LGPS Lump Sum, it does not exceed 25% of the combined Capital Value of your LGPS Benefits and your AVC fund.

The Capital Value of your pension benefits is calculated as follows:

120 x Annual Pension +

10 x (Lump Sum (if any) + 

10 x In house AVC Fund (if any) ÷ 7 = Capital Value

Capital Value x 25% = Maximum Lump Sum 

e.g.

A member retires at age 65 after 15 years.  Career Average Pay was £15,000.  The member built up an in-house AVC fund of £5,000.  Pension Benefits would be calculated as follows:

Pension

1/80 x 15 x £15,000 = £2,812.50

Lump Sum

3 x Pension = £8,437.50

In-house AVC fund £5,000

Capital Value

                                 £

120 x £2,812.50 = 337,500

10 x £8,437.50  =   84,375

10 x £5,000       =   50,000

Total                     471,875 ÷ 7 = £67,410.71

Maximum Lump Sum 25% x £67,410.71 = £16,852.67

The automatic LGPS Lump Sum of £8,437.50 and in-house AVC fund of £5,000 leave a difference of £3,415.17

Divide by 12 £3,415.17 ÷ 12 = £284.60

To receive the maximum lump sum the pension would be reduced by £284.60 to £2,527.90

The maximum lump sum is £16,852.67