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Can Councillors exchange part of their pension as a lump sum?

You can exchange part of your annual pension for a one off tax-free cash payment. You can take up to 25% of the overall capital value of your pension benefits as a lump sum and you will receive £12 lump sum for each £1 of pension given up, providing the total lump sum does not exceed £268,275 (2023/24 figure) less the value of any other pension rights you have in payment.

The overall capital value of your pension benefits is calculated as:

(Pension x 20) + lump sum + value of AVC fund (if any)

However, it should be noted that this calculation is not as simple as it appears as it is the benefits after pension has been exchanged for lump sum which must be taken into account, i.e. the calculation must be repeated for the new lump sum and new reduced pension to ensure that the 25% limit is not exceeded. As the capital value of accrued rights and pension to lump sum conversion are interdependent, multiple calculations may be required. 

In the current climate of long life expectancies and low-interest rates, members are reminded that the cash sum may not be sufficient to replace the pension surrendered. If you are considering this option, you are strongly recommended to contact an Independent Financial Advisor for advice.

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