What is the tax-free pension commencement lump sum (PCLS) limit in 2026/27?

Full answer

When you start drawing from a defined contribution or defined benefit pension, you can usually take a portion of it as a tax-free lump sum known as the pension commencement lump sum (PCLS). **The 25% rule** For most people, PCLS equals 25% of the pension being accessed. So if your defined contribution pot is worth £200,000, you could take £50,000 tax-free and draw the remaining £150,000 as income (taxable). **The lifetime cap -- £268,275** Following the abolition of the Lifetime Allowance in 2024, PCLS entitlement is now governed by the Lump Sum Allowance. The maximum tax-free PCLS any individual can ever take across all their pensions is £268,275. Once that cap is used up, any further lump sums from pensions are taxable at your marginal rate. **Worked example** Suppose you have two pension pots: - Pot A: £600,000 -- you take 25% = £150,000 PCLS - Pot B: £600,000 -- you later take 25% = £150,000 PCLS Total PCLS taken = £300,000. But the cap is £268,275, so only £268,275 is tax-free. The remaining £31,725 (£300,000 - £268,275) is taxable income. **Protected tax-free cash** Some individuals who had existing pension rights before April 2006 may have a higher PCLS entitlement through protection schemes (Enhanced Protection or Primary Protection). These protections are preserved. **Defined benefit pensions** For final salary schemes, the PCLS is calculated differently -- you typically commute part of your annual pension in exchange for a lump sum, using a commutation factor set by the scheme. The 25% / £268,275 rules still apply as an overall ceiling. **Tax tip** If your fund is £1,073,100 or smaller, taking 25% keeps you within the £268,275 cap (25% x £1,073,100 = £268,275). Larger pots will hit the cap.

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