Teachers' pensions -  understanding lump sums

Your short guide to lump sum entitlement as part of the Teachers’ Pension Scheme


What is a lump sum entitlement?

When you come to take benefits from the Teachers’ Pension Scheme (TPS), you’re entitled to take a one-off lump sum. This can be taken tax free, up to 25% of the capital value or £268,275 (whichever is lower). The TPS will only pay a lump sum up to the limit of £268,275. 

The lump sum is not automatically payable for most members, who will need to give up some of their pension to purchase the lump sum. 

However, some members will receive an automatic lump sum, depending on which part of the Teachers’ Pension Scheme they have benefits in.

Are you eligible for an automatic lump sum?

You’re entitled to an automatic lump sum of three times your pension as part of your benefits if you joined the Teachers’ Pension Scheme before 1st January 2007 and you haven’t taken your benefits, taken a repayment of contributions for your service, or transferred out of the scheme.

If you aren’t entitled to an automatic lump sum or you wish to maximise the lump sum you receive, you can choose to convert part of your pension to create a lump sum. You’ll need to have been in service since 1st January 2007 and be in either the final salary or career average arrangement.

The maximum lump sum you can receive is equal to your annual pension multiplied by 30 and divided by 7. For example, if you have an annual pension of £9,500 you can convert up to £40,714.

For every £12 of lump sum you want, you’ll need to give up £1 of your annual pension. So, if you want a lump sum of £18,000, you’ll have to give up £1,500 per year.

Can you increase the value of your lump sum?

Yes. If you qualify for an automatic lump sum and have been in pensionable service since 1st January 2007, you can convert part of your pension to an additional lump sum. The maximum additional lump sum that you can take is equal to your annual pension multiplied by 33 and divided by 14. For example, if you have an annual pension of £9,500 you can take an additional lump sum of £22,393.

Bear in mind that converting part of your pension to a lump sum will in turn reduce the amount of pension you receive.

Can you change your mind on taking an additional lump sum?

No. Any decision you make about a lump sum is final and can’t be reversed. Equally, any pension reductions as a result of taking a lump sum are permanent. That’s why it’s important to get clued up on your pension and lump-sum allowances before you make any decision.

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