Teacher's Pension tax free lump sums

GRACEINDIA

Good evening,

I have spent days reading through pension websites, government and other websites and talking to my pension agencies to try and fully understand the implications of when to take my pensions.  I have sent several secure messages to TPS but no response over the last 4 weeks. I would be very grateful if someone could confirm, or otherwise (!) my understanding so far and answer some questions.  I called TPS but the person I (eventually) got through to had to keep going to ask someone else for answers so I’m not confident about the advice. 

I am 62 in January 2026 and took voluntary redundancy in July 2025 from my ‘substantive’ role in the university sector, where I was contributing to the University’s Superannuation Scheme (USS). My NPA is 66 so I don’t plan to take that just yet.

Prior to this, I have 25 years of service with the Teacher’s Pension Scheme (TPS defined benefit) which I left in 2006 (final salary 1/80th, NPA = 60).  My benefit statement shows an annual pension of £21k plus 3x lump sum. 

TPS online commutation calculator gives me an option to take a maximum additional tax free lump sum of £47k, but,  the online guidance also states that only those who have been in TPS service since 1st January 2007 can convert part of their annual pension to a lump sum.  I left in 2006, so can I, or not?

Finally, how can I be sure that the lump sums will indeed be tax free - will HMRC really let me receive £30k tax-free redundancy and £110k tax-free pension lump sum in a single tax year?

 Any further insight would be much appreciated.

Thank you.

Shirley

El_Torro

Tax free lump sums are exactly that, tax free. Getting redundancy in the same year doesn't mean that you need to pay tax on your pension's tax free lump sum. 

I'll leave it to others to say whether you are eligible for the lump sum from your teacher's pension.

Also remember that taking the maximum tax free lump sum isn't always the best way to go, since you would then be getting a lower monthly payout. 

DRS1

There is another thread on here about a teacher who did not take their NPA60 pension at 60 and is regretting it.  They are still in the TPS so it may not be the same case as you but you may want to look into claiming the pension soonest.

I'll see if I can find it.  If nothing else it mentions a facebook group which you may find helpful.

DRS1

This is the thread I was thinking of - a long one.
Pension, Final Salary - My Brain Hurts! — MoneySavingExpert Forum

This thread mentions the facebook group in the second post
Teachers' Pensions — MoneySavingExpert Forum

DRS1

Oh and on the additional lump sum presumably you give up some pension to get that?  Do you know how much pension you give up?  A rate of 12:1 seems common for some public sector schemes (ie give up £1 of pension for £12 of lump sum.  Members of those public sector schemes and posters on here think that is a lousy rate and would probably tell you not to do it.  But do check the rate and see.

Marcon

GRACEINDIA said:

TPS online commutation calculator gives me an option to take a maximum additional tax free lump sum of £47k, but,  the online guidance also states that only those who have been in TPS service since 1st January 2007 can convert part of their annual pension to a lump sum.  I left in 2006, so can I, or not?

You can't. You get the automatic lump sum but no option to exchange part of your pension for extra tax free cash.

Wesleyan are frequently much easier and more helpful reading than the TPS website: https://www.wesleyan.co.uk/pensions-and-retirement/teachers-pension/lump-sums#:~:text=What%20is%20a%20lump%20sum,salary%20or%20career%20average%20arrangement.

xylophone

This Guide is relevant to you?

https://www.teacherspensions.co.uk/-/media/documents/member/guides/working-life/deferred-member-guide-october-2024.ashx?rev=bc35a3e9375545809d8ee033cb382828&hash=BF355021F450691E980781CB3851614C

Under present legislation, you won’t pay tax on a retirement lump sum paid by the Scheme.

If a lump sum is not an automatic payment in the pension scheme you’re in, you can decide to give up some of your pension to create a lump sum. If you’re due to receive an automatic lump sum and were in service on or after the 1 January 2007, you can give up some pension to increase that lump sum. For each £1 of pension you give up you’ll receive £12 of lump sum or additional lump sum.

It appears  that you are a deferred member of the section of the scheme where there IS an automatic lump sum and you do not have service on or after 1/1/07.

Your NPA was 60.

Once you reach your Normal Pension Age
(NPA) and provided you are out of service you should claim your benefits. If you continue
in pensionable service after you reach your Normal Pension Age your benefits will be paid from the last day of pensionable service. If you delay making your claim then your benefits will be backdated to your last day of service or when you reached your NPA, whichever is the later. Any backdated payments will be paid as a lump sum and will be subject to tax.

Universidad

GRACEINDIA said:

I am 62 in January 2026 and took voluntary redundancy in July 2025 from my ‘substantive’ role in the university sector, where I was contributing to the University’s Superannuation Scheme (USS). My NPA is 66 so I don’t plan to take that just yet.

Worth checking into your USS pension a little bit more. I don't know how long you were accruing it, but the NPA only changed to 66 in October 2020. Unlike in a lot of schemes, the NPA for any benefits you accrued before October 2020 won't have changed.

Although you can't claim your pension in these separate tranches, this could affect when you decide to take it. 

For example, I have some pension in the pre-2011 scheme where the pension could be taken unreduced from 63.5, and some between 2011 and 2020 where the normal pension age was 65. Finally, I have a little bit up to 2022, when the NPA was 66.

If I were to take my pension at 65, I'd have lost out on 1.5 years of payments from 63.5 in the FS section, and the relatively small part of my pension with an NPA of 66 would be actuarially reduced by one year. But I would also be getting a whole year of extra pension compared to waiting to 66, and the vast majority of it wouldn't be reduced at all.

ouraggie

As an aside, i think if your redundancy lump sum is above £30k you would pay tax on any amount above 30k. But you can ask for the extra to be paid into your pension scheme instead, saving you the tax.

mHettyR

Hi,
I am just about to take a teacher’s pension and am considering whether or not to take the maximum lump sum or no lump sum to maximise my monthly payments. However I am confused about the tax status differences between the 2 options. If I take a maximum lump sum - tax free, I think I all of the monthly payments will be subject to tax. However, if I take no lump sum I have been told by TPS that the whole of my monthly payments will again be subject to tax, I will not get 25% of it tax free. This doesn’t seem to make sense. Notwithstanding that, I know that other pensions do receive a 25% tax free allowance on the monthly payments, having foregone the lump sum. I would be so grateful if someone could confirm the TPS advice. Thanks in advance.

QrizB

mHettyR said:

I would be so grateful if someone could confirm the TPS advice.

TPS are correct.

If you take a pension commencement lump sum, it will be tax-free.

All pension payments are liable to tax, although how much tax you pay will depend on your entire income for the year.

mHettyR said:

I know that other pensions do receive a 25% tax free allowance on the monthly payments, having foregone the lump sum.

You're thinking of UFPLS withdrawals from a DC pension? These are not directly comparable to TPS pension payments.