You can take some of your pension as a tax-free lump sum when you access your benefits. This is known as commutation. How that tax-free lump sum is calculated is changing with the introduction of CARE from 1 April 2024.
On accessing your pension benefits you will be able to receive a tax-free lump sum from the different elements of your pension benefits. Currently the final salary element of your pension provides an automatic tax-free lump sum at the rate of 3 x annual pension, or you can choose a higher tax-free lump sum in exchange for some of your pension. There is no automatic tax-free lump sum under CARE, though there’s the option to exchange £1 of annual pension for £12 tax-free lump sum. In addition, if you have them, you can withdraw a tax-free lump sum from any Additional Voluntary Contributions (AVCs) and Shift Pay Pension Plan (SPPP) that you have built up.
When you come to access your benefits, the pension scheme administrators will support you in providing all the information for you to decide how you want to access them.
The notes below provide an explanation and examples of how that tax-free lump sum can be taken. There are three different versions depending on which pension scheme you are in and whether you wish to take a tax-free lump sum from your AVCs and SPPP.
If you are a member of:
- CNPP CPS Benefit Structure; or
- CNPP GPS Benefit Structure and don’t have any AVCs or SPPPs or don’t wish to take a tax-free lump sum from them when you access your pension benefits; or
- MEG ESPS and don’t have any AVCs or don’t wish to take a tax-free lump sum from them when you access your pension benefits.
Most members are in this group: Lump sum examples – 1 CPS & GPS + MEG ESPS no AVC or SPPP.
You are a member of the MEG ESPS and choose to take a tax-free lump sum from your AVCs when you access your pension benefits: Lump sum examples – 2 MEG ESPS with AVC.
You are a member of the CNPP GPS Benefit Structure and choose to take a tax-free lump sum from your AVCs or SPPPs when you access your pension benefits: Lump sum examples – 3 GPS with AVC or SPPP.