Rules introduced in April 2006 as a result of changes to HM Revenue and Customs legislation, have now allowed all members to increase their lump sum by giving up part of their annual pension. The standard conversion rate is 12 to 1.
This means that when you retire you can elect to give up part of your annual pension and for every whole £1 you give up, you will get an additional £12 added to your tax free retirement grant.
The maximum amount of tax free cash you can take from the Scheme when you retire is 25% of the Capital Value of your pension benefits. This gives you your maximum tax free cash from the scheme. An example of how you can calculate your maximum tax free cash can be found by following the link on the next page.
Please note: in order to avoid any tax charges on your retirement grant, you must make your conversion election before your pension comes into payment.
Also if you have any other pension benefits, including AVC's, which are due to come into payment, (with the exception of your state pension), we need to know about them as they could affect how much you could convert in to your tax free retirement grant.
The amount of pension you are able to exchange for tax free lump sum is limited by HM Revenue and Customs to 25% of the capital value of your pension benefits (provided the lump sum does not exceed £250,000 (2016/17 figure) less the value of any other pension rights you have in payment).
The capital value of your pension benefits is worked out by multiplying the yearly pension payable at retirement by 20 and adding in any automatic lump sum (only payable if you were a member of the LGPS before 1 April 2008). If you are paying in house AVCs and you are taking these at the same time as your main LGPS benefits they will also need to be taken into account when working out the capital value.