How your pension is built up
At a glance
Your pension is based on how long you were a member of the scheme and your pay. It is payable for life. When you retire, you’ll have the choice to exchange some of your pension for a tax-free lump sum – this is known as commutation.
You are in the
1987 scheme
Yearly build up
Calculating your pension
Your pension is calculated as:
For years 1 - 20
For years 20 and above
The portion of your pension that builds up after 20 years is known as double accrual. Members who also have benefits in the 2015 scheme and over 20 years’ service also receive weighted accrual. The maximum pensionable service that can be built up in the 1987 scheme is 30 years.
You can select to exchange some of your pension for a lump sum.
Example – pension – under 20 years’ service
Amhir has been a member of the 1987 scheme for 18 years. His pensionable pay is £50,000.
Amhir’s pension is calculated as:
Protecting your pension
Weighted accrual
Although you could only build up 1987 scheme membership to 31 March 2022 (the date the scheme closed), some members are still entitled to extra protection through the 2015 scheme transitional arrangements. This protection is called weighted accrual.
Weighted accrual is a way of protecting some of the extra pension you could have received under the 1987 scheme. It applies only to service in the 2015 scheme after the 1987 scheme closed and benefits for members who build up service across both 1987 and 2015 schemes in excess of 20 years.
Weighted accrual is a formula that is used to create a specific accrual rate for your 1987 pension. It helps make up for the fact that the scheme was closed by providing a proportion of the ‘double accrual’ benefits you may have received if the 1987 scheme had stayed open.
How is it worked out?
The accrual rate depends on your length of service and will fall somewhere between 1/60th and 1/45th. This means the amount of pension you build up can vary based on how many years you have in the scheme.
NPCC Pension Podcast - Episode 2
You can find out more about the transitional benefits put in place as a result of remedy in the podcast episode.
Example – pension with weighted accrual
Amanda has a total of 30 years pensionable service across both the 1987 and 2015 schemes:
- 21 years 165 days in the 1987 scheme.
- 8 years 200 days in the 2015 scheme.
She had built up 21 years 165 days in the 1987 scheme when it closed in April 2022.
The normal 1987 accrual rate is 1/60th (this is the rate used if Amanda had been only in the 1987 scheme).
If Amanda had stayed in the 1987 scheme for all 30 years, she would have had 40 years of service under the old double accrual rules (20 years at 1/60th plus 10 years at 2/60th). So her total ‘hypothetical’ years’ service is counted as 40 years.
How the weighted accural is worked out
(Total years' service x 60)
So in the example:
- Total actual service = 30 years
- Basic 1987 accrual rate = 60
- Hypothetical service = 40
30 × 60 ÷ 40 = 45
So, the weighted accrual rate to use is 1/45th.
- 21 years 165 days of 1987 service
- Weighted accrual rate: 1/45th
- Pensionable pay: £50,000
21 years 165 days / 45 x £50,000 = £23,835.62
So weighted accrual boosted Amanda’s 1987 scheme benefits while she was a member of the 2015 scheme.
12 months
What is average pensionable pay?
Average pensionable pay is your pay in the last 12 months of service.
If your pay in one of the previous two years was higher, then this figure would be used.
Example
The year before Alex retired, he had been given temporary promotion.
His average pensionable pay, for calculating his pension, will be the year before retirement pay (£45,000).
Year of retirement
£37,000
1 year before retirement
£45,000
2 years prior to retirement
£40,000
Final salary link
Are you building up benefits in the 2015 scheme?
The 2015 scheme provides members with final salary service in both the 1987 scheme and the 2006 scheme with a final salary link. This means that if you are also building up benefits in the 2015 scheme, your average pensionable pay for calculation of 1987 benefits will be based on your earnings at the date you retire and not when you left the 1987 scheme.
The final salary link can be retained even if you leave pensionable service and come back at a later date, as long as the gap is not more than five years.
30 year limit
What is pensionable service?
Pensionable service is the time you were a member of the police pension scheme 1987. It can include:
- Regular service where you made contributions
- Service where contributions were deemed to be paid (e.g. the first 26 weeks of maternity leave)
- Transferred in service from another police force, including a Scottish force or the Police Service of Northern Ireland
- Periods of ‘relevant service’ under section 97 of the Police Act 1996
- Transferred in service from another pension scheme
- Part time working (service is calculated on a pro-rata basis)
It is capped at 30 years’ pensionable service.
Commutation
Lump sum
You can exchange up to 25% of your pension for a lump sum.
To do this, you must let your administrator know before you start to receive your pension.
The amount of lump sum you can take is calculated using a set of factors which are set by the government actuary's department and depend on your age in years and complete months when you retire.
Depending on the value of your lump sum there may also be a tax charge.
You can find out the full list of factors used to calculate lump sum in the resources section.
Between 25 and 30 years’ service
If you retire before your normal retirement age for your rank, with between 25 and 30 years’ service, the maximum lump sum you can take is no more than 2.25 times your pension.
NPCC Pension Podcast - Episode 3
You can find out more about lump sums in the podcast episode.
Example - lump sum
Steve’s pension is worth £25,000 a year. Before he retires at age 58, he decides that he wants to give up some of his pension to take the maximum lump sum (25%).
Using the commutation factors, each £1 that Steve exchanges will get him a lump sum of £21.63.
25% of Steve’s pension is £6,250.
He gives this up and gets a lump sum of £135,187.50. His pension is then reduced to £18,750 a year.
There are limits to the amount of lump sum you can take without receiving a tax charge. In this example, Steve’s lump sum goes over that limit so he will have to pay tax on some of his lump sum.
Tax and your lump sum
The government limits the amount of lump sum you can take before receiving a tax charge. This is known as the permitted maximum.
The 1987 scheme may allow you to take a lump sum which exceeds this value. If you decide to take a lump sum above the permitted maximum it is classed as an unauthorised payment.
Calculating the permitted maximum lump sum
The following formula is used to work out the maximum permitted lump sum:
(20 × f × g)
Where:
- 20 = HMRC’s standard valuation factor
- f = the scheme’s commutation factor
- g = your annual pension before commutation
30 × 60 ÷ 40 = 45
So, the weighted accrual rate to use is 1/45th.
Continuing the example from the section above, Steve’s permitted maximum would be:
(20 × 21.63 × £25,000) ÷ (20 + (3 x 21.63))
= £10,815,000 ÷ 84.89
= £127,400.16
His lump sum is £135,187.50. This is £7,787.34 above his permitted maximum so he would need to pay a tax charge on this difference.