Calculating your Benefits
The amount of your retirement benefits and the date on which they become payable will depend on your age, final pensionable earnings and length of pensionable service. You will receive a pension for life, plus if you choose to commute part of it, a tax-free lump sum.
Your annual pension is based on 1/60th of your average pensionable earnings for each year of pensionable service up to 20 years, and 2/60ths of your average pensionable earnings for each year over 20 years, up to a maximum of 40/60ths. For example, 25 years’ service gives 30/60ths. Each day counts as 1/365th of a year. The maximum length of pensionable service that can count towards a pension under the 1987 Scheme is 30 years.
An ordinary pension is awarded immediately on retirement after completion of at least 25 years’ pensionable service. If you have 25 years’ pensionable service, you may retire on an ordinary pension paid immediately on retirement if aged 50 or over. However, if you have 30 years’ pensionable service, you may retire with an immediate pension before age 50.
Chris’s average pensionable eanings is £30,000 and his pensionable service is 20 years at 1/60th each and 5 years at 2/60th each.
His annual pension is calculated as 30 years x 1/60th x £30,000 = £15,000
The following 'service' is counted in the calculation of your pension under the 1987 Scheme:
- your current service as a regular Police Officer during which you have paid pension contributions or for which contributions are deemed to have been paid (e.g. any unpaid period in the first 26 weeks of maternity leave).
- earlier service in the same force, or in other Police Forces (again, provided that you paid pension contributions in your earlier service and that these have not been refunded to you).
- earlier service with a Scottish Force or the Police Service of Northern Ireland, if you transferred with consent and you paid pension contributions which have not been refunded to you.
- periods of ‘relevant service’ under section 97 of the Police Act 1996 (this includes appointments to the Inspectorate of Constabulary and certain types of overseas service) during which you have paid pension contributions.
The 1987 Scheme was closed on 6 April 2006, therefore a transfer of pension rights into this Scheme is no longer possible. However, if you transferred previous pension rights into the Scheme before this date, the additional service purchased will count towards the calculation of your benefits.
Your pension benefits are calculated based on your average pensionable earnings, which is normally your pensionable pay for your final 12 months of service. However, if your pensionable pay in one of the preceding two years was higher, the best year will then be used.
Alex retires at the end of 2016. He was given temporary promotion in 2015. His pensionable pay in the 3 years prior to his retirement has been:
2016 > £37,000
2015 > £45,000
2014 > £40,000
His average pensionable pay for calculating his pension will be £45,000 in respect of 2015.
Average pensionable pay is always taken to be full-time pay, even if you work part-time. If you work half time for a year, for example, your final pensionable pay for that year is the full-time rate (but you will only be able to count a half year’s pensionable service).
Exchanging your Pension
In the 1987 Scheme, you can commute part of your pension permanently in exchange for a lump sum. If you wish to commute, you must provide sufficient notice before your date of retirement, or if your pension does not come into payment on retirement, before the pension comes into payment.
You may commute up to 25% of your pension if you receive:
- an ordinary pension after not less than 30 years' pensionable service or on compulsory retirement on account of age;
- a short service pension;
- an ill-health pension; or
- a deferred pension on coming into payment.
Note that the factors used to calculate the commutation of annual pension to lump sum upon completion of 30 years' pensionable service or on compulsory retirement on account of age are published by the Government Actuary's Department (GAD).
In all other cases, you may commute an ordinary pension of at least 25 (but less than 30 years' pensionable service) to give a maximum lump sum of no more than 2.25 times your gross annual pension (before any reductions).