The 1987 scheme closed to new entrants on 31 March 2006. It closed as an active scheme on 31^st March 2022.

The exit points were maintained.

Officers can leave at 30 years’ service across the schemes and take their 1987 pension at any age with the full commutation factors available.

If they reach 25 years’ service across the schemes then they can leave at age 50 or above with an immediate benefit from the 1987 scheme. The commutation is capped at 2.25 times the gross pension at this point with a higher residual pension.

At age 55 Met officers of any rank and County PC and PS’ can retire with any service and take the 1987 pension with the full commutation factors available to them.  County Inspectors and above do not have this available to them until age 60.  For a County Inspector or above they need to reach 30 years or age 60 before the full commutation factors are available to them.   

The member’s guide is included for reference but it is out of date in certain aspects.

PPS_Members__Guide.pdf (publishing.service.gov.uk)

Even though the scheme is closed as an active scheme there is still growth in the pension thanks to the final salary link and weighted accrual. Pay rises have a positive effect on the pension, both annual rises and rises due to promotion. The salary used for calculating the pension is the average pensionable pay working back for a year from the date of retirement and then the previous two years are considered and the best of those three years are used.

If you are retiring on 31 May 2024, they would look at the following years:

1 June 2023 to 31 May 2024.

1 June 2022 to 31 May 2023.

1 June 2021 to 31 May 2022.

An officer needs to do a full year at a pay point for the full effect to be recognised in their final salary. This is the same for the annual pay rise. For instance, the 7% pay rise last year came into effect on 1 September 2023. To get the full benefit for final salary purposes an officer would need to work until 31 August 2024. Pensions are calculated daily and leaving in the period 1 September 2023 to 31 August 2024 would see a proportion of the pay rise used in the final salary calculation.

Overtime is not pensionable in any of the Police Pension Schemes.

The 1987 pension also continues to increase with weighted accrual up to thirty years pensionable service across the pension schemes. Weighted accrual was a concession given by the Government to provide compensation for the loss of double accrual when the pensions were reformed.  An explanation and worked examples of weighted accrual are provided in the 2015 members guide. The weighted accrual table is below. This has the effect of changing it from a 60ths scheme with a maximum accrual of 40/60ths to the weighted accrual position.

If an officer retires with 30 years’ service pensionable service across the schemes, then the calculation is:

Pensionable service in the 1987 scheme/45 x Average Pensionable Pay = Gross Annual Pension.

Commutation

With the 1987 scheme you can commute a maximum of 25% of the gross pension as a cash lump sum. If an officer chooses to take the maximum lump sum and is younger than 62 years and 2 months there is an unauthorised tax charge payable by the scheme which is passed on to the officer. This is not personal taxation and is to do with the commutation factor used to calculate the pension being over 20. It reaches 20 at 62 years and 2 months.

The commutation factors drop each month after 48 years and 6 months. This will not be noticed in terms of actual commutation whilst weighted accrual is increasing. Even after 30 years the commutation will not drop in value if pay rises are above around 1.5%. This is a common myth – the pension never drops and even though the commutation factors are dropping it does not mean the actual value of the commutation will drop too.

If an officer does not want to pay the unauthorised tax charge, then they can take the maximum tax-free commutation and a higher residual pension.

There are a further two options with commutation – take none and have the gross pension or take a chosen amount between zero and the maximum lump sum. There is no right answer and officers need to be comfortable with the decision they make.

The link below is the last change in commutation factors which was announced and published on 3^rd April 2023. It has the commutation factors used to calculate the commutation and worked examples of how to calculate the tax on the maximum lump sum and the maximum tax-free lump sum.  The UK link is not available. 

Police_Factors_1987_Commutation_04042023.pdf (pensions.gov.scot)

PFEW have no notice of changes in commutation factors and there is no guarantee that they will continue to increase.

Scheme Sanction Charge

The unauthorised tax charge on the maximum commutation is lawfully, taken from members by the Scheme. An unauthorised tax charge also attracts a scheme sanction charge (SSC) and that is paid by the scheme. PFEW has been working over the last year or so to address this as there was an inconsistent approach to this throughout the country.

No one should be being charged the SSC on their commutation now and Forces are refunding officers who were incorrectly charged. Some Forces never passed the charge on to officers.  If you think that you have or may have been charged incorrectly speak with your former Force in the first instance.