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    Calculating your Pension

    In their simplest format, pensions should be very easy to calculate. We take the member's length of service they have, divide it by the relevant accrual rate for that scheme, which is 45 for the FPS 2006: Modified Retained Section, and multiply that figure by their salary:
    Length of Service ÷ 45 × Salary

    Example

    Looking at a retained firefighter with a reference pay of £28,766 per annum, who has been credited with 14 years 221 days of pensionable service, the following is what that firefighter could expect to receive:

    Pension = 14.6047 years ÷ 45 × £28,766 = £9,335.97

    This pension is payable for the rest of the firefighter's life and is guaranteed to increase each year (where inflation – as measured by the Consumer Prices Index – is positive for the year).

    Note that within the above calculation, there is no mention of a lump sum. This is because the default benefit from the FPS 2006: Modified Retained Section does not include the automatic provision of a lump sum.

    However, a firefighter can give up part of their pension to provide a lump sum. This is known as 'commutation'. If they decide that they do want to commute, they must ensure that their election is made before within 4 months of their benefits coming into payment; once benefits have come into payment, it will be too late to elect for a lump sum.

    The rate of conversion is set by factors that were calculated and provided by the Government Actuary's Department (GAD) in force at 1 April 2014.

    These rates are more generous than the factor applicable to members of the standard FPS 2006.

    The FPS 2006: Modified Retained Section regulations allow a firefighter to commute up to a quarter of their pension when they retire. However, the amount of lump sum a firefighter can receive tax-free is restricted by HMRC limits to avoid taxable payment charges. The formula is:

    (20 × Gross Special Pension) ÷ [(3 × Commutation Factor*) + 20]

    * see the commutation factor table for the age-related factors

    Where a factor greater than 20 is used, HMRC limits will be breached, and so the commuted portion will need to be restricted.

    Using the example above, our firefighter is claiming their benefits at 55, and so the starting point for calculating commutation would be:

    Annual (pre-commutation) pension = £9,335.97

    Member elects to commute the maximum 25% (£2,333.99 a year)

    Lump Sum of £48,546.99 (£2,333.99 x 20.8)

    Annual (post commutation) pension = £7,001.98

    As HMRC assess the total value of the benefits as 20 times the pension actually received plus the lump sum actually received, our example firefighter's capitalised benefits would be: (20 × £7,001.98) + £48,546.99 = £188,586.59.

    Maximum tax-free lump sum permitted by HMRC is 25% of the total capitalised value of benefits, i.e. 25% × £188,586.59 = £47,146.65.

    For this particular member, the commuted lump sum of £48,546.99 would have exceeded the HMRC limit by £1,400.40 (£48,546.99 - £47,146.65).

    Restrict commuted portion

    So, in order to comply with the regulations on payment of lump sums for retained modified members of FPS 2006, the commuted portion needs to be restricted:

    (20 × Gross Special Pension) ÷ [(3 × Commutation Factor) + 20]

    (20 x £9,335.97) = 186,719.40 / [(3 × 20.8) + 20] = 82.40 = £2,266.01

    Therefore the lump sum would equal £2,266.01 × 20.8 = £47,133.01, with a residual pension payable of £7,069.96 (£9,335.97 - £2,266.01)

    If we check this again against the HMRC test:

    [£7,069.96 × 20] + £47,133.01 = £188,532.21 × 0.25% = £47,133.05

    The firefighter's benefits no longer exceed HMRC limits

    Commutation Factor Table
    The lump sum is calculated by reference to the attached factor table which has been prepared by the Government Actuary's Department (GAD). The table is the same for men and women and shows how much lump sum you will receive for each £1.00 of pension that you give up.
    Years
    Age in years and completed months on day pension commences
     
    0
    1
    2
    3
    4
    5
    6
    7
    8
    9
    10
    11
    Below 50
    23.4
     
    50
    22.4
    22.3
    22.3
    22.3
    22.3
    22.2
    22.2
    22.2
    22.2
    22.1
    22.1
    22.1
    51
    22.1
    22.0
    22.0
    22.0
    22.0
    21.9
    21.9
    21.9
    21.9
    21.8
    21.8
    21.8
    52
    21.8
    21.7
    21.7
    21.7
    21.7
    21.6
    21.6
    21.6
    21.6
    21.5
    21.5
    21.5
    53
    21.5
    21.4
    21.4
    21.4
    21.3
    21.3
    21.3
    21.3
    21.2
    21.2
    21.2
    21.1
    54
    21.1
    21.1
    21.1
    21.0
    21.0
    21.0
    21.0
    20.9
    20.9
    20.9
    20.9
    20.8
    55
    20.8
    20.8
    20.8
    20.7
    20.7
    20.7
    20.6
    20.6
    20.6
    20.5
    20.5
    20.5
    56
    20.4
    20.4
    20.4
    20.4
    20.3
    20.3
    20.3
    20.2
    20.2
    20.2
    20.1
    20.1
    57
    20.1
    20.0
    20.0
    20.0
    19.9
    19.9
    19.9
    19.8
    19.8
    19.8
    19.7
    19.7
    58
    19.7
    19.6
    19.6
    19.6
    19.5
    19.5
    19.5
    19.4
    19.4
    19.4
    19.3
    19.3
    59
    19.3
    19.2
    19.2
    19.2
    19.1
    19.1
    19.1
    19.0
    19.0
    19.0
    18.9
    18.9
    60
    18.9
    18.8
    18.8
    18.7
    18.7
    18.7
    18.6
    18.6
    18.6
    18.5
    18.5
    18.5
    61
    18.4
    18.4
    18.4
    18.3
    18.3
    18.2
    18.2
    18.2
    18.1
    18.1
    18.1
    18.0
    62
    18.0
    18.0
    17.9
    17.9
    17.8
    17.8
    17.8
    17.7
    17.7
    17.7
    17.6
    17.6
    63
    17.5
    17.5
    17.5
    17.4
    17.4
    17.4
    17.3
    17.3
    17.2
    17.2
    17.2
    17.1
    64
    17.1
    17.1
    17.0
    17.0
    16.9
    16.9
    16.9
    16.8
    16.8
    16.8
    16.7
    16.7
    65
    16.6
    16.6
    16.6
    16.5
    16.5
    16.5
    16.4
    16.4
    16.3
    16.3
    16.3
    16.2
    66
    16.2
    16.2
    16.1
    16.1
    16.0
    16.0
    16.0
    15.9
    15.9
    15.9
    15.8
    15.8
    67
    15.7
    15.7
    15.7
    15.6
    15.6
    15.6
    15.5
    15.5
    15.4
    15.4
    15.4
    15.3
    68
    15.3
    15.2
    15.2
    15.2
    15.1
    15.1
    15.1
    15.0
    15.0
    14.9
    14.9
    14.9
    69
    14.8
    14.8
    14.7
    14.7
    14.7
    14.6
    14.6
    14.5
    14.5
    14.5
    14.4
    14.4
    70
    14.3
    14.3
    14.3
    14.2
    14.2
    14.1
    14.1
    14.0
    14.0
    14.0
    13.9
    13.9
    71
    13.8
    13.8
    13.8
    13.7
    13.7
    13.6
    13.6
    13.5
    13.5
    13.5
    13.4
    13.4
    72
    13.3
    13.3
    13.2
    13.2
    13.2
    13.1
    13.1
    13.0
    13.0
    12.9
    12.9
    12.8
    73
    12.8
    12.8
    12.7
    12.7
    12.6
    12.6
    12.5
    12.5
    12.4
    12.4
    12.3
    12.3
    74
    12.3
    12.2
    12.2
    12.1
    12.1
    12.0
    12.0
    11.9
    11.9
    11.8
    11.8
    11.7
    75
    11.7