Pension Commencement Lump Sum
Accessing Your Pension
PCLS, which is often known as ‘tax free cash’ or a ‘tax free lump sum’, is a tax free payment which most people can receive when they start accessing their pension benefits. It is normally 25% of the value of the pension benefits being accessed.
Uncrystallised is the term used to describe pension funds which have not yet been accessed. They won’t have been tested against the ‘lifetime allowance’ – please read our Lifetime Allowance fact sheet for more information. PCLS can only be taken from uncrystallised funds, at the point that you choose to crystallise them.
Crystallised funds are those which have been tested against the lifetime allowance and assigned to provide pension benefits. There is no further PCLS available from crystallised funds. The term ‘crystallise your pension benefits’ would be synonymous with ‘access your pension benefits’.
When you decide to access some of your pension funds, you will normally have the choice to receive some of the funds as PCLS and to use the rest to provide taxable income.
For example, if you had an uncrystallised pension worth £100,000 and decided to go into drawdown, you could choose to receive £25,000 upfront as a PCLS payment and then put £75,000 into drawdown. The £75,000 of crystallised funds would then be available to you to provide taxable income payments.
You don’t have to take PCLS if you don’t want to. For example, if you wanted to purchase an annuity, you might decide that you would rather have the greater annuity value that you could purchase using your whole pension, rather than the annuity you could buy with 75% of your pension after taking a PCLS.
You won’t normally need to take all of your PCLS at once, in the same way that you don’t normally have to access all of your pension benefits at once. You get the choice to take a PCLS each time you access some new pension benefits.
For example, let’s say your pension was worth £400,000, so you could take up to £100,000 PCLS in total. If you decided to crystallise £200,000 of those benefits, you could take £50,000 PCLS at that point. You could take more PCLS when you decided to crystallise the remaining £200,000.
If you have normal PCLS entitlement, the maximum PCLS you can have in total from all of your pensions is 25% of the lifetime allowance. Therefore the maximum you could receive anytime you crystallise funds is 25% of your remaining lifetime allowance.
There is a further restriction: the maximum PCLS you can receive when you crystallise benefits is 25% of the amount you’re crystallising at that time.
Funds in drawdown are crystallised, so there’s no more PCLS entitlement even if the fund value increases. Fund growth will, however, increase the amount which is available to you as taxable income.
If you have a form of lifetime allowance protection, you may be entitled to more PCLS. Most of the protections will allow you to take up to 25% of your protected lifetime allowance, rather than the normal lifetime allowance. However, other forms of protection may entitle you to a fixed amount of PCLS which is higher than normal, or a lower percentage of each amount you crystallise but a higher overall amount. Our lifetime allowance protection fact sheets explain how each protection affects your PCLS entitlement.
Under pre-2006 pension rules, some people had pensions which allowed them to take more than 25% of the fund value as PCLS. This enhanced PCLS related to the particular pension; an individual who had one may also have other pensions elsewhere with normal PCLS entitlement.
If you had one of these pensions and you are still with the same provider, you should still be able to take your higher PCLS amount. If you have since transferred to a new provider, you will need to have completed a ‘block transfer’ to keep your protected amount. We strongly recommend that you speak to an adviser if you have transferred your pension and are unsure whether this applies.
You can find out more about block transfers here.
Sometimes people may decide to crystallise funds and take PCLS, but not want to withdraw it immediately – for example, if they are waiting for an investment to mature in order to free up enough cash to make the payment.
It’s normally possible to delay taking a PCLS; however the legislation says that you must take it within 12 months of crystallising your funds. After 12 months, the entitlement is lost. The amount which was going to be paid as PCLS would simply remain in your pension, ready to be crystallised at a later date.
For example, let’s say your pension was worth £450,000 and you want to crystallise £200,000 and take £50,000 of this as PCLS, leaving £250,000 uncrystallised. You ask your provider if you can delay taking the £50,000 PCLS. £150,000 goes into drawdown, and the remaining £300,000 stays as it is, with £250,000 uncrystallised and £50,000 available to take as PCLS. If you don’t take the PCLS within a year, the £50,000 is just treated as uncrystallised funds again. You effectively just crystallised £150,000 without taking PCLS.