Most members can take up to a maximum of 25% of the capital value of their LGPS benefits as a lump sum.
Lifetime Allowance (LTA)
The LTA is abolished from 6 April 2024. However, there is still a limit on the amount of tax-free cash that you can take from your pensions.
There are 2 pension tax limits instead of the LTA:
- Lump Sum Allowance (LSA). The LSA is £268,275. It is the amount of tax-free lump sum you can take across all your pensions.
- Lump Sum and Death Benefit Allowance (LSDBA). The LSDBA is £1,073,100. It limits the amount of tax-free cash across all your pensions when you die.
Most members will not meet these limits.
There are special rules for members with existing HMRC protection from LTA charges. The LSA and LSDBA are increased if a member holds a valid LTA protection.
You must still provide information about your other pensions when you take a pension. You must complete the Retirement Declaration form in full.
The LTA part of the form will be changing to accommodate this new legislation. In the meantime, you must still complete it in full.
When you take your pension, you can choose to convert some of your annual pension to provide a tax-free lump sum.
Your annual pension is reduced to provide a lump sum. For every £1 of annual pension that you give up you receive an extra £12 of lump sum. You must take your lump sum at the same time as you take your annual pension.
For membership in the scheme before 1 April 2008 you receive an automatic tax-free lump sum. There is no automatic lump sum for membership from 1 April 2008 but your annual pension is calculated using a higher accrual rate. You can convert some of your annual pension to provide a lump sum or increase your automatic lump sum.
Register or log in to member self service to use the pension projectors. An Annual Benefit Illustration (ABI) is also sent to you by the end of August each year. It gives you an update about your pension benefits. Find out about Annual Benefit Illustrations
Survivors pension
Any subsequent pension for your survivors will not be affected by your decision to exchange part of your pension for a lump sum. However, any lump sum death grant payable may be affected. The more lump sum you receive when you take your pension, the less lump sum death grant will be payable on your death.
Example of converting annual pension to lump sum
You have 'Standard benefits' of:
- Annual pension £2,500, and
- Lump sum £6,000.
You give up £500 of your annual pension.
This amount converts to an additional tax-free lump sum of £6,000 (£500 x 12)
You will receive 'Converted benefits' of:
- Annual pension £2,000, and
- Lump sum £12,000.
Limits
Most members can take up to a maximum of 25% of the capital value of their LGPS benefits as a lump sum. Your lump sums across all your pensions are tested against the Lump Sum Allowance (LSA). Lump sums are tax free if all of them do not reach this limit. Find out about the LSA
You must take your lump sum at the same time as you take your annual pension.
The capital value of your pension benefits is worked out by multiplying your annual pension at retirement by 20 and adding in any automatic lump sum (payable if you were a member of the LGPS before 1 April 2008). If you paid in-house AVCs and you are taking these at the same time, this must be added in too.
If you paid into the LGPS before April 1997, you will have a Guaranteed Minimum Pension (GMP). You cannot reduce your annual pension to below this amount.
We must use factors provided by the Government Actuary’s Department (GAD) for calculations. These factors can change from time to time.
Process
Your option to convert some annual pension to lump sum is made in writing at the time you take your pension. It must be made before your last day of work.
Once you have chosen the amount you wish to convert you cannot change your mind. It is important that you receive an estimate of your benefits from us before you make this decision and leave work.
If you are a current member, your employer requests an estimate of benefits from us anytime within 6 months before your expected date of retirement so that you can make informed decisions. You cannot request an estimate yourself. The request must come from your employer as they provide us with your up to date pay details.