Taking a tax-free lump sum when you retire 

When you take your pension, you can choose to swap some of it for a tax-free lump sum. For every £1 of annual pension, you give up you will receive £12 of tax-free lump sum. You can take up to 25% of the capital value as a tax-free lump sum. 

If you joined the LGPS before 1 April 2008 then you will receive a tax-free lump sum when you retire. You will also have the option to exchange part of your pension to increase your lump sum.   

There is no provision in the LGPS to take a lump sum separately without taking the rest of your benefits.

Using My Pension online to get an estimate 

You can model your benefits at different retirement dates using the My Pension online service.  As part of the online calculator, you can see the effects of swapping annual pension for a bigger lump sum. 

Example: Swapping Pension for Lump Sum

When Liz retires, she has a standard annual pension of £11,300 and an automatic tax-free lump sum of £18,750. Liz can take up to 25% of the capital value as a tax-free lump sum, which is £55,125. If she does, she will receive an extra £36,375 lump sum and her annual pension will reduce by £3,031 to £8,269. 

Taking a larger lump sum reduces your annual pension but does not reduce any survivor pension paid after you die to your spouse, civil partner, eligible cohabiting partner or child. 

It is very important that you think carefully about this option before you take your pension. It will not be possible to reverse your decision after your pension has been paid.   

There is a limit on how much tax-free lump sum you can take. HM Revenue and Customs (HMRC) rules mean that most people can take up to 25% of the capital value* of their pension benefits as a tax-free lump sum. The amount of tax-free lump sum you can take from the LGPS may be affected if you exceed the lifetime allowance.  

(*The capital value of your benefits is calculated as (annual pension amount x 20) plus basic lump sum). 

My Pension Online