Can I give up some of my pension to increase my lump sum?
You will be able to exchange some of your pension for a bigger tax-free lump sum. You will be able to take up to a maximum of 25% of the capital value of your pension benefits as a tax-free lump sum*.
The lump sum automatically paid on retirement roughly equates to 15% of the capital value. Any amount you take as a lump sum above the automatic lump sum would be achieved by exchanging part of your annual pension for a one-off tax-free cash payment – for each £1 annual pension given up you will receive £12 lump sum.
An option to take extra lump sum has to be made in writing before your benefits are paid. So that you have plenty of time to make up your mind and seek financial advice if you wish, it is important you contact your administering authority well in advance of your intended retirement date so they can provide you with more details.
Your pension will be reduced in accordance with any election you make to receive extra lump sum. Any subsequent spouse’s, civil partner’s and children’s long term pensions will not be affected if you decide to exchange part of your pension for extra lump sum.
*Provided the lump sum does not exceed £263,750 (2019/2020 figure) less the value of any other pension rights you have in payment.