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About Your Benefits

Lump Sums

If you left after 1 March 1992, you are able to take a tax-free cash lump sum of up to 25% of the total value of your MPS benefits, subject to a maximum of 25% of the Lifetime Allowance. A 9:1 ‘exchange’ rate is used for calculating the lump sum payable.

The exchange rate is fixed in the Scheme Rules. It in no way represents a fair exchange of annual income for cash when compared with annuity rates offered by insurance companies on the open market.

If you left before 1 March 1992 you may have a separate lump sum entitlement which cannot be converted to a pension although an optional higher cash lump sum may be payable. The Lifetime Allowance calculation for a member who left the MPS before 1 March 1992 must include any separate lump sum entitlement before making an estimate as shown in the section Deferred Pensioners.

Although the Scheme offers a lump sum option, a decision to take the maximum lump sum from the Scheme will probably not be in the financial interests of a member in normal health. Taking cash permanently reduces the amount of weekly pension which may be paid for decades to come. You should bear this in mind before selecting a cash option and may wish to seek independent financial advice.

Trivial commutation

In some instances, very small pensions may be exchanged for a final trivial cash lump sum, provided they pass tests set by HM Revenue and Customs (HMRC). Before December 2009, the only condition was that the pensions from all schemes being converted to cash must be valued at less than 1% of the overall limit on tax-favoured pension funds under the Lifetime Allowance test. Using HMRC’s conversion tables, that means that provided pensions from all Schemes come to roughly less than £17.30 in 2010/11 they can be cashed in from age 60 (but before age 75) and converted to a one off lump sum.

From December 2009, a more flexible additional version of trivial commutation was made available by HMRC in addition to the one above. If your pension within a single scheme is valued at less than £2,000 by their formula (which is equivalent to an MPS pension of £1.53 per week) you may commute it for a single cash payment from age 60. Under this new test, it does not matter whether you also have other pension scheme income.