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Pension lump sum

Q: I joined the NHS in 1985 and understand that on retirement it is now possible to take a bigger tax-free lump sum from the NHSPS. How does this work?

A: For GPs in the NHSPS 1995 section, (for those who joined before 1 April 2008), the automatic lump sum entitlement is three times the value of the pension payable at retirement.

However, the maximum potential lump sum is broadly 5.36 times the value of the pension payable but you must give up £1 gross (taxable) annual pension income for every additional £12 lump sum taken.

For example, if a member's benefits at retirement were a pension of £40,000 gross a year and an automatic lump sum of £120,000, they could increase their lump sum by £94,440 (£40,000 pension multiplied by 5.36 totals £214,400).

In order to do this, their pension would be reduced by around £7,866 gross a year (£94,400 extra lump sum divided by 12) and the revised benefits would be a pension of approximately £32,133 a year and a lump sum of £214,400.

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