Calculate how much LGPS pension you can commute to a tax-free lump sum at £12 for every £1 of pension given up. See the break-even analysis and long-term income comparison.
| After retirement year | Without commutation (pension only) | With commutation (pension + lump sum) | Difference |
|---|
Note: Comparison uses nominal figures (no inflation adjustment). The LGPS pension is CPI-indexed, so the real advantage of keeping the full pension grows over time in an inflationary environment.
Results are estimates. The HMRC pension commencement lump sum (PCLS) limit is £268,275 from April 2023. Your LGPS administering authority will confirm the exact commutation options at retirement.
The LGPS post-2014 CARE scheme does not include an automatic tax-free lump sum. Instead, members can choose to commute part of their annual pension to receive a one-off tax-free cash payment at retirement. The exchange rate is fixed by the LGPS scheme regulations at £12 tax-free lump sum per £1 of annual pension given up.
HMRC limits your pension commencement lump sum (PCLS) to 25% of the capitalised value of your pension. For a defined benefit pension, HMRC uses a capitalisation factor of 20, so:
Because the commutation rate is 12:1, it takes exactly 12 years for the lost pension to cumulatively equal the lump sum received. If you live more than 12 years in retirement, you receive more total income by not commuting — in pure nominal cash terms. However, the tax-free nature of the lump sum, the time value of money, and individual cash needs can all change the actual decision.
| Lump sum taken | Pension reduction | Break-even years |
|---|---|---|
| £12,000 | £1,000/yr | 12 years |
| £30,000 | £2,500/yr | 12 years |
| £60,000 | £5,000/yr | 12 years |
| £75,000 | £6,250/yr | 12 years |
The break-even is always 12 years regardless of the size of the commutation, because the commutation rate is fixed at 12:1.
The standard LGPS commutation rate is £12 tax-free lump sum for every £1 of annual pension you give up. This rate is set by the LGPS scheme regulations and applies throughout England and Wales.
You can commute up to 25% of the capitalised value of your LGPS pension. The capitalised value is your annual pension multiplied by 20. The maximum tax-free lump sum is also capped by HMRC at £268,275. The formula is: maximum lump sum = minimum of (annual pension × 5) and £268,275.
The break-even point is always exactly 12 years, because the commutation rate is 12:1. After 12 years of retirement, the total pension without commutation exceeds the total pension-plus-lump-sum with commutation. After that point you receive more total income by not having commuted, in nominal cash terms.
Yes. The pension commencement lump sum (PCLS) taken by commuting LGPS pension is fully tax-free, provided it does not exceed £268,275. Any lump sum above this limit would be taxed as income.
This depends on your circumstances — specifically your need for immediate cash, your life expectancy, your tax position, and whether you need maximum income. The break-even is 12 years. If you expect a long retirement in good health, preserving the full pension generally produces more total income. Always seek regulated financial advice for this decision.
Yes. The survivor's pension paid to a spouse or civil partner on your death is typically based on a proportion of your pension in payment. If you commuted pension and reduced your annual payment, the survivor's pension is also reduced proportionately.
Yes. You can choose any lump sum up to the maximum. You do not have to take the full maximum. Enter your desired amount in this calculator to see the exact pension reduction and break-even calculation for any amount you choose.
You typically elect your commutation preference when completing your retirement paperwork with your LGPS administering authority. Once the pension is put into payment, the decision is normally irrevocable. Consider it carefully before submitting retirement forms.
The LGPS pension is CPI-indexed, meaning it grows over time in line with inflation. A fixed lump sum does not grow. If inflation is high over your retirement, the real value of the pension increases while the lump sum retains no real growth. This generally favours keeping more pension and taking less cash for long retirements.
Maximum lump sum = minimum of (annual pension × 5) and £268,275. This comes from 25% × (annual pension × 20 HMRC factor). For example, a £15,000 pension gives a maximum lump sum of £75,000. A pension of £53,655 or above would hit the £268,275 HMRC cap.
There is no regulatory minimum commutation amount. You can commute any amount of pension up to the maximum allowed. Smaller commutations give proportionally smaller lump sums.
Yes. However, once you have flexibly accessed money purchase pension benefits (if any), the Money Purchase Annual Allowance (MPAA) of £10,000 may apply. A defined benefit lump sum from the LGPS is not classed as flexible access, so it should not trigger the MPAA. Always check with a pension adviser for your specific circumstances.