Removal of ‘Commutation Cap’ – PPS 1987
There are currently two methods for calculating commutation payments for members of the PPS 1987. Those officers who complete 30 years of service are entitled, should they so wish, to commute up to 25% of their pension. This is calculated by reference to commutation tables published by the Government’s Actuarial Department (known as the ‘GAD tables’). Those officers who complete between 25 and 30 years of service, and who retire on an ordinary reduced pension, have been restricted under the rules of the scheme from commuting more than 2 ¼ times the value of their pension. There is a considerable difference between the two amounts. The inability to be able to commute up to 25% of their pension has, in some cases, served as a disincentive to officers who may wish to retire in advance of completing 30 years of service from so doing.
For some time, the PSAEW, PFEW and CPOSA have been pressing the Home Office to remove this restriction, which we have regarded as unnecessary. Ministerial approval has now been granted for the restriction to be removed. A copy of the decision can be accessed via this link.
2016 06 30 Ministerial Decision 2.25 commutation pdf version
It is important to note that, whilst Ministerial approval has been given, further information is awaited in relation to the timing of the implementation.
Although the decision by Ministers is very welcome, there are some important caveats to note:
- It will not apply retrospectively
- Discretion will rest with ‘the employer’ (i.e. an officer’s force) on whether to consent to the restriction being lifted, and
- The employer will be responsible for funding the difference in commutation payment under these circumstance
Whilst commutation is actuarially cost neutral to the overall cost of a pension scheme (hence our argument that the restriction was unnecessary and should be removed) it is acknowledged that there will be greater ‘upfront costs’ to the scheme through the removal of the commutation cap. Ministers have decided that such additional costs should not be borne by HM Treasury but by individual forces. Various points of clarification have been sought from the Home Office in relation to this. It might be anticipated that, should an officer wish to retire between 25 and 30 years of service and be able to commute up to 25% of his/her pension, a business case will need to be made to support this.
It is assumed that, if an officer does not want to commute more than 2 ¼ times the value of his/her pension, there will be no change to existing arrangements.