Commutation If, on retirement, you prefer to have a lump sum as well as a pension you can provide one by “commutation”. To do this you must give written notice to the fire and rescue authority, no earlier than 4 months before your intended retirement and no later than the day before your pension is due to come into payment. You would state how much of your pension (including any Additional Pension Benefit) should be commuted, i.e. converted into a lump sum. You can commute as much or as little as you like provided that you do not exceed the limits set out in the FPS1992 rules. The limit depends upon the circumstances of your retirement. Circumstances of retirement Commutation limit With an ill-health pension, or with an age retirement pension based on 30 years' pensionable service, or with a deferred pension, or at or after normal pension age (55). Maximum commutation of one quarter of pension (only the lower tier ill-health pension can be commuted in the case of a higher tier ill-health award). With an age retirement pension at age 50 or over but below age 55, with 25 or more but less than 30 years' pensionable service. Lump sum must not be greater than two and a quarter times the pension before commutation; a greater sum may be permitted at the discretion of the authority (who would have to fund the additional cost). The amount provided as a lump sum is decided by factors provided by the Scheme Actuary. The factor used will depend upon your age in completed years and months on the day your pension commences. Unlike previous factors which reflected whether the firefighter was male or female, current factors are “unisex”. Please be aware that HM Revenue and Customs limit the amount of lump sum which you can receive tax-free. The limit is most likely to be exceeded if the relevant commutation factor is greater than 20. However, when your pension becomes due, the authority’s pensions administrator will be able to tell you how much you can commute while remaining within the tax limits. Example of calculation of commuted lump sum A firefighter born on 10 October 1957 has a last day of service of 17 May 2015. He has completed 30 years of service and is entitled to the immediate payment of his pension. He elects to commute the maximum amount which, in his case, can be one quarter. His pension before commutation is £20,000 a year. On the day his pension commences his age will be 57 years and 7 completed months; the relevant commutation factor shown in the table is 19.7 His lump sum will be: £20,000.00/4 x 19.7 = £5,000.00 x 19.7 = £98,500.00 His pension after commutation will be: £20,000.00 - £5,000.00 = £15,000.00 a year.