Commutation
Exchanging part of your annual pension for a one-off tax-free lump sum at retirement, typically at a rate of £12 of lump sum per £1 of pension given up.
Most UK pension schemes allow you to give up some of your annual pension in exchange for a larger tax-free lump sum at retirement. The standard commutation rate is 12:1 — you sacrifice £1,000/year of pension to receive £12,000 as a lump sum. You can commute up to 25% of your pension's capital value.
Whether commutation is good value depends on how long you live. At 12:1, the break-even point is roughly 12 years — if you live longer than 12 years after retirement, you'd have been better off keeping the pension income. Some older schemes have higher commutation rates (15:1 or even 20:1) which are much more generous.
This calculator provides estimates based on 2025/26 tax rates and is not financial advice. Scottish taxpayers are subject to different income tax rates and bands. The calculations assume your salary is your only source of income and do not account for benefits in kind or other taxable income.
For personalised guidance on your pension contributions, speak to an FCA-regulated financial adviser. You can find one via Unbiased or VouchedFor.