If, on retirement, you prefer to have a lump sum as well as a pension you can do this by exchanging some of your pension for lump sum cash – this is known as “commutation”.
To do this you must give written notice to the fire and rescue authority, no earlier than 4 months before your intended retirement and no later than the day before your pension is due to come into payment.
You would state how much of your pension (including any Additional Pension Benefit) should be commuted, i.e. converted into a lump sum. (Note that you may not commute any portion of a higher tier ill-health pension.)
You can commute as much or as little as you like provided that it is not more than one quarter (25%) of your pension (or reduced pension if you have chosen to receive it early).
For each £1 of pension that you commute, you would receive £12 as a lump sum.
For example, if you were entitled to a pension of £16,000 a year and you chose to commute the maximum portion of one quarter, this would be £4,000. Your total benefits would be:
Pension: £16,000 - £4,000 = £12,000.00 a year
Lump sum: £4,000 x 12 = £48,000
Please be aware that HM Revenue and Customs (HMRC) limit the amount of lump sum which a pension scheme member can receive tax-free. If it looks as if limits are likely to be exceeded, the authority’s pensions administrator will be able to tell you how much you can commute while remaining within the tax limits.