Retirement Lump Sums
The amount of additional tax free Lump Sum you can collect with your pension depends on your scheme membership.
Automatic tax-free Lump Sum
Classic provides an automatic Lump Sum of three times your initial annual pension. An automatic Lump Sum is also available under Classic Plus in relation to service accrued before 1 October 2002.
Additional tax-free Lump Sum
If you were in pensionable service after 30 September 2007, you will be able to choose to give up part of your pension for an additional Lump Sum.
You can choose how much extra Lump Sum you want up to a maximum set by HMRC. You must give up £1 of annual pension for each £12 of additional Lump Sum you take.
You can find out how much additional Lump Sum you can take, and the effect it will have on your pension by using the Lump Sum calculator on our Member Calculators webpage.
Example: Anne is retiring from Classic. Anne has a pension entitlement of £12,000 a year plus an automatic Lump Sum entitlement of £36,000. Anne can, if she wishes, take an additional Lump Sum up to a maximum of £12,000 x 33/14 = £28,285.71.
If Anne opts to take an additional £12,000 Lump Sum, her pension will be reduced by £1,000 a year. So Anne will end up with a tax-free Lump Sum of £48,000 and an annual pension of £11,000 a year.
Reducing your annual pension in this way generally has no impact on your dependants’ pensions as these are based on your pension before you give any up for a higher Lump Sum.
However, if you are aged 75 or over when you die, the tax rules on pensions may restrict the total of any dependants’ pensions payable to a maximum of the amount of your pension at the date of your death.
If you take a higher Lump Sum, your dependants’ pensions may reduce if you die after reaching 75 and leave two or more children underage (or under age 23 if they are in full-time education).
Under Classic and Classic Plus, if you are single and eligible for a partial or full refund of WPS contributions on full retirement, you will have less scope to give up pension for an additional Lump Sum. This is because the total of any WPS refund plus any additional Lump Sum you choose to take cannot exceed the maximum permitted Lump Sum.