Glossary · UK
What is Pension Commencement Lump Sum (PCLS / Tax-Free Cash)?
The tax-free lump sum, usually up to 25% of a pension pot, that you can take when you start drawing benefits.
Full Definition
The Pension Commencement Lump Sum (PCLS), often called tax-free cash, is the portion of a defined contribution pension you can normally take free of income tax when you crystallise benefits, usually from age 55 (rising to 57 from 2028). It is generally 25% of the amount being crystallised, subject to an overall lifetime limit on tax-free lump sums set by HMRC. The remaining 75% can be left invested, drawn as taxable income through drawdown, or used to buy an annuity. Taking the PCLS alone does not trigger the Money Purchase Annual Allowance, but drawing taxable income does. This is not advice; rules are complex, so check gov.uk and use the pension calculator to plan withdrawals.
How Pension Commencement Lump Sum (PCLS / Tax-Free Cash) is calculated
tax_free_cash = 0.25 x crystallised_amount- crystallised_amount
- portion of the pension being put into drawdown or annuity
- 0.25
- standard 25% tax-free proportion
Worked example: Crystallising GBP 200,000 gives GBP 50,000 tax-free, leaving GBP 150,000 taxable when drawn.