When you take your Police Pension you will be given the option of being able to take up to 25% of your pension fund as a tax-free lump sum payment, known as commutation. Refer to your pension scheme handbook for full details.
This can be a good way of releasing some of your money without having to pay tax on it, to pay off debts or a mortgage, pay for a planned expense or to invest for growth or a regular return.
If you do decide to take a lump sum payment it's worth bearing in mind that your regular monthly pension payment will be lower.
Should you take a lump sum?
This will depend on your own personal situation - your financial position and your plans for the future.
Here are some things you may want to consider:
- Will paying off your debts with your commutation reduce your outgoings by more than the amount of pension you will be giving up?
- As you'll be retiring at a younger age than most, do you want a lump sum to spend and enjoy?
- Are you planning to start a second career or new business? If so, will you need all the income the full pension will give you? Could you invest some of the money now to use at a later date, when you're ready to finish working all together?
- Are you prepared to take a lower monthly income in return for having access to a lump sum?
- Do you know that the survivors pension will be the same whether you have commuted or not?
- By taking a lump sum you have the added responsibility of ensuring you invest or spend it wisely.
- Do you have plans for your lump sum already?
- Those who live longer than average may receive more in the long-run by not commuting. Although this one is quite hard to plan for!
If you would like to talk through your options, why not make an appointment to see one of our independent financial advisers? They specialise in dealing with the Police and and their pensions.
Please make sure you are aware of your pension scheme rules and obtain an up to date illustration from your pension administrator prior to making any decisions about your pension and retirement.