Commuting means giving up some of your yearly pension for a tax-free lump sum. Enter your pension, your scheme's commutation factor and any automatic lump sum to see the most you can take tax-free, the pension you keep and how long the lost pension takes to add up to the cash.
Final salary and career average schemes
In a defined benefit scheme, such as a final salary or career average pension, you may be able to swap part of your yearly pension for a lump sum when you retire. The commutation factor is the exchange rate. The NHS Pension Scheme, for example, pays £12 of lump sum for every £1 of annual pension you give up, and its 1995 Section also pays an automatic lump sum that is normally 3 times your pension.
So at a factor of 12, giving up £1,000 a year of pension produces £12,000 of cash. Use the factor shown on your own scheme's retirement quote, and enter any automatic lump sum separately.
HMRC caps the tax-free lump sum from a defined benefit scheme at a quarter of the lump sum plus 20 times the pension left after commutation. When all the cash comes from commuting, HMRC's manual gives the maximum as 20fg / (20 + 3f), where f is the commutation factor and g is the pension before commutation. The tax-free amount is also limited by your lump sum allowance, which is £268,275 unless you hold a protected allowance.
| For each £1,000 of pension | Maximum lump sum | Pension kept |
|---|---|---|
| 12:1, no automatic lump sum | £4,286 | £643 |
| 15:1, no automatic lump sum | £4,615 | £692 |
| 20:1, no automatic lump sum | £5,000 | £750 |
| 12:1 plus automatic 3 x pension | £5,357 | £804 |
HMRC's worked example: a £30,000 pension with a 15:1 factor allows a maximum tax-free lump sum of £138,461, leaving a pension of £20,769 a year. Put those figures into the calculator to check them.
At a factor of 12 the cash equals 12 years of the pension you give up. The lump sum is tax-free, but the pension would have counted as taxable income, so the break-even is longer after tax: about 15 years for a 20% taxpayer and 20 years at 40%. Scottish taxpayers pay different rates on pension income, from 19% to 48% in 2026/27, so the calculator lets you choose those too. The break-even also ignores any yearly increases to the pension, which would make the pension you keep worth more.
In the NHS scheme, commuting does not change the pension payable to your partner or dependants when you die. Other schemes set their own rules, so check before you decide.
To put a capital value on the whole pension, use the defined benefit pension value calculator. For a defined contribution pot, see the pension tax-free lump sum calculator and the pension lump sum tax calculator, or compare the income you could buy with the annuity calculator.
Giving up part of your yearly defined benefit pension in exchange for a tax-free lump sum when you retire. The commutation factor sets how much cash you get for each £1 of yearly pension you give up.
The NHS Pension Scheme pays £12 of lump sum for every £1 of annual pension commuted. Members of the 1995 Section also normally get an automatic lump sum of 3 times their pension.
Up to a quarter of the lump sum plus 20 times the pension left. With no automatic lump sum that is 20fg / (20 + 3f), which at a factor of 12 is about 4.29 times the starting pension, subject to the £268,275 lump sum allowance.
The excess is not a tax-free pension commencement lump sum. HMRC says it could be an unauthorised payment unless other rules allow it, and any part above your lump sum allowance is taxed as income.
Before tax, the number of years equals the commutation factor, so 12 years at 12:1. After tax on the pension it is longer: about 15 years at 20% and 20 years at 40%, before any yearly increases.
In the NHS Pension Scheme it does not change the pension payable to your partner or dependants on your death. Other schemes have their own rules, so check with yours.
