Overview

As an LGPS member, you build up a pension that will increase in line with the cost of living for the rest of your life after you take it. You can exchange part of your pension for a tax-free lump sum that is paid when you take your benefits.

You can only choose to swap pension for lump sum when you first take your LGPS pension. You cannot change your decision later. It is important that you think carefully and make the right decision for you.

Your lump sum choice

When you take your pension benefits, you can choose to swap part of your pension for lump sum. For every £1 of annual pension you give up you will get a lump sum of £12.

If you were a member of the LGPS before 1 April 2008, you will have built up an automatic lump sum. See the section on How your pension is worked out for more information. Most members will still be able to give up part of their pension to increase their lump sum.

When you take your pension, we will ask you on your Retirement claim form if you want to swap any of your pension for lump sum and let you know:

• how much pension you have built up, and any automatic lump sum if you joined before 1 April 2008
• the maximum lump sum you can take
• the reduced pension you will receive every year if you choose the maximum lump sum.

You can choose to swap any amount of pension for lump sum, up to the maximum limit. If you elect to swap pension for lump sum, your pension will be reduced. Any survivor pension paid to your partner or eligible children will not be affected.

You must tell us if you wish to swap pension for lump sum on your Retirement Claim form before your LGPS benefits are paid. You may wish to seek financial advice before making your decision. 

Once you have chosen what lump sum and pension to take, you cannot change your decision. You cannot elect to swap pension for lump sum once your pension is being paid to you.

How much lump sum?

HM Revenue and Customs (HMRC) limits the amount of tax-free lump sum you can take when your pension is paid to you. From 6 April 2024, the maximum lump sum is the lowest of:

• 25% of the capital value of your benefits
• £268,275
• £268,275 less the total lump sums you have already taken.

The Lifetime Allowance was removed from 6 April 2024. However, if you hold a valid Lifetime Allowance protection, you may be able to take a lump sum that is larger than £268,275.

If you have a Guaranteed Minimum Pension (GMP) you may not reduce your pension below the level of your GMP. This means that your maximum lump sum may be lower than the limit set by HM Revenue and Customs.

If you have paid Additional Voluntary Contributions (AVCs) you may be able to take some or all of these as tax-free cash when you take your LGPS pension.

Getting an estimate

When you claim your pension, you have to tell us on your Retirement Claim form if you want to exchange any of your pension for tax-free lump sum.

If you request a pension estimate from your employer, or make a projection using the ‘Benefit calculator’ facility in your secure online MyPension account, you will be told:

• how much pension you have built up, and any automatic lump sum if you joined before 1 April 2008, and
• the maximum lump sum you can take, and
• the reduced pension you will receive every year if you choose the maximum lump sum.

You can choose to exchange any amount of pension for lump sum, up to the maximum limit. If you elect to swap pension for lump sum, your pension will be reduced. Any survivor pension paid to your partner or eligible children will not be affected.

PLEASE NOTE: Neither an estimate from your employer nor any projection from the Benefit calculator in your MyPension account will take into account any in-house AVCs you may have paid.

Lump sum recycling

If you use your tax-free lump sum to increase significantly the contributions you pay to a pension scheme, this is known as ‘recycling’. This is a complex area and if HMRC consider recycling has occurred, then you will have to pay extra tax. 

You can find out more about lump sum recycling from HMRC. You may wish to seek regulated financial advice if you think recycling might apply to you.