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Lump Sum
What is the pension commencement lump sum (PCLS)?
The PCLS is a one off payment or series of payments that can be made to you when you crystallise your benefits. It is currently tax free, and is commonly referred to as tax free cash.
When is it paid?
Your PCLS is calculated at the time you crystallise your benefits and is normally paid immediately. However, it can be paid up to one year after your crystallisation date if necessary.
How is the Pension Commencement Lump Sum (PCLS) calculated?
The PCLS is normally limited to the lower of:
- Your available Lump Sum Allowance
- Your available Lump Sum and Death Benefit Allowance
- Your applicable amount (25% of the amount you are crystallising)
What is a transitional tax free cash certificate?
If you took benefits from a pension scheme prior to 6th April 2024 and took less than 25% as a tax free lump sum you may be eligible to apply for a transitional tax free cash certificate. You cannot apply for the certificate if you have enhanced protection with lump sum protection over £375,000.
HMRC have provided further information on their website with regards to transitional tax free cash certificates which can be found at https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm174300
If you wish to rely on a transitional tax free cash certificate the certificate must be received before your first crystallisation post 6th April 2024.
Who is entitled to more than 25% Pension Commencement Lump Sum (PCLS)?
Certain members of occupational schemes (including SSASs) may have an entitlement to more than 25% PCLS if they have funds which built up prior to the 5th April 2006. We may need to ask for historic employment information which we will need to calculate the PCLS for these people. This entitlement to a higher PCLS may be transferred to other arrangements (including SIPPs), but only through a mechanism known as a ‘block transfer’.
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