Pension lump sum
One of the main benefits of your local government, firefighter or police pension scheme is that you can exchange some of your annual pension income for a lump sum payment at retirement.
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What do we mean by a pension lump sum?
It’s when you take part of your pension as a one-off cash payment when you retire, instead of receiving all of it in monthly instalments (also known as a ‘pension commencement’ lump sum).
How much will I get?
Usually, you can convert up to 25% of your pension benefits into a tax-free lump sum. For every £1 of annual pension income you give up, you would receive £12 in your lump sum.
In the FPS 1992 or 2006 Special Members and the PPS 1987 schemes, the exchange rates (known as commutation factors) may be different depending on your age at retirement.
For most people, the maximum tax-free lump sum you can take is £268,275. This is called the lump sum allowance (LSA).
If you paid into the LGPS before 1 April 2008, you are entitled to an automatic lump sum equal to three times your annual pension income (based on your benefits built up before 1 April 2008 only).
You can choose to increase your automatic lump sum up to 25 per cent of your pension benefits. For every £1 of annual income you give up, you would receive an additional £12 in your lump sum.
In the FPS 2006 and 2015, and the PPS 2015 schemes, you can convert up to 25% of your pension benefits into a tax-free lump sum. For every £1 of annual pension income you give up, you would receive £12 in your lump sum.
In the FPS 1992 or 2006 Special Members and the PPS 1987 schemes, the amount you’ll receive may be different depending on your age at retirement.
In the PPS 2006 scheme, you’re entitled to an automatic lump sum equal to four times your annual pension income, but you have the option to swap some or all of this to increase your annual pension.
When will I receive my lump sum?
You should receive your lump sum before your first pension income payment, which is usually at the end of the month of your retirement date.
Please note – this could be the following month, depending on when we receive your completed forms.
Can I take all my pension as a one-off lump sum?
It depends if you meet certain criteria and on the size of your local government, police or firefighters’ pension. This option (known as trivial commutation) is only available for small pension pots less than £30,000. To find out more, visit our Trivial Commutation web page.
