The Police Federation of England and Wales has condemned what it describes as an overnight cut to the lump sum offered to officers in the 1987 Police Pension Scheme, after the Treasury raised the SCAPE discount rate and the Government Actuary's Department issued revised commutation factors with immediate effect. The Federation says officers retiring this week will receive a lump sum roughly five per cent smaller than colleagues who retired the week before, for the same amount of pension surrendered. This guide explains how the 1987 scheme commutation works, what SCAPE is, and what the new factors mean in pounds and pence.
TL;DR
The 1987 Police Pension Scheme is a final salary defined benefit scheme closed to new entrants since 6 April 2006. Officers can give up part of their annual pension at retirement to receive a one-off lump sum. The exchange rate, called the commutation factor, is set by the Government Actuary's Department and is sensitive to the Treasury's SCAPE discount rate. A higher SCAPE rate produces lower commutation factors, meaning a smaller lump sum for the same pension surrendered. Treasury's latest SCAPE adjustment has reduced lump sums by roughly five per cent compared with last week. The annual pension itself is not affected.
Last reviewed: 23 May 2026
What the 1987 Police Pension Scheme is
The Police Pension Scheme 1987 is a final salary defined benefit pension that was open to officers who joined the police service in England and Wales before 6 April 2006. It is widely regarded as one of the most generous public sector pensions in UK history. Pension benefits build up at one-sixtieth of final pensionable pay for each of the first 20 years of service. Service between 20 and 30 years accrues at a faster weighted rate, reaching a maximum of forty-sixtieths of final pay after 30 years' pensionable service. That works out at two-thirds of final salary for a full career officer.
The scheme is now closed to new entrants and is being wound down through the McCloud remedy, which transitions most active service from legacy schemes into the 2015 Career Average Revalued Earnings scheme.
What commutation actually means
Under Regulation B7 of the Police Pensions Regulations 1987, an officer entitled to an ordinary, short service, ill-health or deferred pension may give up part of their annual pension in exchange for a one-off tax-free lump sum at retirement. This exchange is called commutation. The amount of lump sum received per pound of pension given up is determined by a commutation factor.
The factor varies by age and is published by the Government Actuary's Department as a table. A higher factor means a larger lump sum. An officer who commutes too much pension permanently reduces their monthly income for life, so the decision involves a trade-off between immediate cash and long-term income.
What SCAPE is and why it matters
SCAPE stands for Superannuation Contributions Adjusted for Past Experience. It is the discount rate the Treasury uses to value unfunded public service pension liabilities. The Government Actuary's Department uses SCAPE as a key input when calculating commutation factors. When the SCAPE rate rises, future pension payments are discounted more heavily, which reduces the present-day value of the pension being given up. A lower present-day value translates into a smaller lump sum for the same pension surrendered.
SCAPE is reviewed periodically. A recent Treasury decision to increase the rate has fed through into the new factors issued by the Government Actuary's Department, which apply from the date of publication with no transitional period.
How the change affects officers retiring now
The Police Federation's analysis suggests officers retiring under the new factors will receive a lump sum roughly five per cent smaller than they would have last week, for the same pension surrendered. The exact reduction depends on retirement age and how much pension is being commuted. For an officer commuting the maximum allowable amount of pension into a lump sum, the cash loss can run into several thousand pounds.
The annual pension itself is unchanged. The change only affects the rate at which annual pension can be exchanged for cash.
What you can and cannot commute
HMRC sets an authorised maximum lump sum based on 25 per cent of the capital value of the pension. The 1987 scheme also has its own internal maximum lump sum permissible under scheme regulations, which can in some circumstances exceed the HMRC authorised amount. Where the scheme maximum exceeds the HMRC limit, the excess is taxable as an unauthorised payment, and the officer should consider taking only the authorised amount. The estimate provided by your force pensions team should set out both figures and the tax position.
Officers can choose to commute any amount between zero and the maximum, and there is no single right answer. The decision sits with the officer, ideally after independent regulated financial advice.
Disclaimer
This article is general information about the 1987 Police Pension Scheme and is not personal financial advice. Pension decisions are individual, and the right amount to commute depends on age, health, dependants, other retirement income and tax position. Anyone approaching retirement should obtain a personal estimate from their force pensions team and consider speaking to a regulated financial adviser. For pensions guidance generally, see Kaeltripton's explore index.
Frequently asked questions
Is my annual pension being cut?
No. The annual pension entitlement under the 1987 scheme is not affected by the change. Only the rate at which annual pension can be exchanged for a lump sum has reduced.
Who decides commutation factors?
The Government Actuary's Department publishes the commutation factor tables. The factors are sensitive to the Treasury's SCAPE discount rate.
When did the new factors take effect?
The new factors apply from the date of publication by the Government Actuary's Department, with immediate effect and no transitional period. Officers retiring on or after the publication date are subject to the new figures.
Do I have to commute any of my pension?
No. Commutation is optional. An officer can choose to take the full annual pension with no lump sum, or commute any amount up to the scheme maximum.
Is the lump sum taxable?
The lump sum is tax-free up to the HMRC authorised maximum, which is broadly 25 per cent of the capital value of the pension. Any amount commuted in excess of that limit may be taxable as an unauthorised payment.
Will future SCAPE reviews change factors again?
Yes. SCAPE is reviewed periodically by HM Treasury. Future rate changes, whether up or down, will feed through into new commutation factors issued by the Government Actuary's Department. There is no protection of factor levels between reviews.
What about the 2006 and 2015 schemes?
The 2006 scheme is also final salary based and operates a different commutation regime. The 2015 scheme is a Career Average Revalued Earnings arrangement with no automatic lump sum, although members can commute part of their annual pension. Each scheme has its own factors and rules.
How we verified this
This article draws on the Police Pensions Regulations 1987, Government Actuary's Department commutation guidance for the 1987 scheme, the Police Federation of England and Wales pensions information, House of Commons Library briefing on the Police Pension Scheme, and GOV.UK guidance on police pensions. SCAPE methodology references HM Treasury's public service pensions discount rate publications.
