At a Glance
✓ You can exchange part of your annual pension for an additional tax-free lump sum.
✓ You will receive £12 of lump sum for every £1 of annual pension exchanged.
✓ You can choose any amount between your standard benefits and the maximum permitted lump sum.
✓ You must make your election before your LGPS benefits come into payment.
When you retire, your LGPS benefits will normally include an annual pension paid monthly. If you were a member of the scheme before 1 April 2008, you may also be entitled to an automatic tax-free lump sum.
You can choose to exchange part of your annual pension for an additional tax-free lump sum. This is known as pension commutation.
How does it work?
Pension commutation means giving up part of your annual pension in exchange for a larger tax-free lump sum.
For every £1 of annual pension you give up, your tax-free lump sum will increase by £12.
Your Options
Standard Benefits
Keep your annual pension as high as possible and receive any automatic lump sum.
Personal Choice
Exchange part of your pension for an additional lump sum.
Maximum Lump Sum
Receive the maximum tax-free cash permitted in exchange for a lower annual pension.
How much lump sum can I take?
HM Revenue & Customs (HMRC) sets limits on the amount of tax-free lump sum that can be taken.
Your total tax-free lump sum cannot normally exceed:
- 25% of the value of your pension benefits; or
- £268,275;
whichever is lower.
Gwynedd Pension Fund will calculate the maximum available to you when you retire.
Example
Before pension commutation
- Annual pension: £10,000
- Lump sum: £24,000
If you exchange £1,000 of annual pension
- New annual pension: £9,000
- Additional lump sum: £12,000
- Total lump sum: £36,000
The example above is for illustration only. Your actual figures will depend on your LGPS benefits.
What about AVCs?
If you have paid Additional Voluntary Contributions (AVCs) with the Fund's in-house AVC provider, you may be able to take some or all of your AVC fund as tax-free cash when you retire.
This will depend on:
- The value of your LGPS benefits.
- The value of your AVC fund.
- The lump sum limits set by HMRC.
If the value of your AVC fund exceeds the amount that can be taken as tax-free cash, the remainder may need to be used to buy additional pension benefits or another retirement product.
When do I need to decide?
We will send you a retirement pack before your benefits come into payment.
The pack will include:
- Your standard benefits.
- Your maximum lump sum.
- The relevant forms.
You must make your election before your pension comes into payment. Once your benefits have started to be paid, your election cannot be changed.
Will survivor benefits be affected?
Exchanging part of your pension for an additional lump sum does not reduce any benefits that may be payable to a spouse, civil partner, eligible cohabiting partner or eligible children.