Pension Lump Sum (PCLS) Calculator
This is an estimate only. Tax depends on your full income in the tax year. Seek regulated financial advice.
What Is the Pension Commencement Lump Sum (PCLS)?
When you first access your pension, you have the option to take a portion of it as a tax-free cash lump sum. This is formally known as the Pension Commencement Lump Sum (PCLS), although it is widely referred to as "tax-free cash" or a "pension lump sum." It is one of the most valuable benefits of UK pension saving, allowing you to access a significant sum of money completely free of income tax.
The PCLS is available from defined contribution (DC) pensions — including personal pensions, SIPPs, and workplace pensions — as well as from defined benefit (DB) schemes, though the rules differ slightly for DB schemes. Understanding how PCLS works is essential before you make any decisions about accessing your retirement savings.
How Much Can You Take Tax-Free?
For most people with defined contribution pensions, the standard rule is straightforward: you can take up to 25% of your pension pot as a tax-free lump sum. However, there is a cap on the total tax-free cash you can receive across all your pension plans over your lifetime. This cap, known as the Lump Sum Allowance (LSA), is currently set at £268,275.
Key Figure: The maximum tax-free pension lump sum you can take across all your pensions is £268,275. If your pension pot is £1,073,100 or less, 25% will fall within this limit. If your pot is larger, you may be limited to £268,275 of tax-free cash.
Any lump sum you take above the £268,275 limit will be subject to income tax at your marginal rate. This means if you have a very large pension pot, careful planning is essential to minimise your tax liability.
What Happens to the Remaining 75%?
After you take your PCLS, the remaining 75% of your pension pot does not disappear. It stays invested within your pension and you have several options for how to access it:
- Annuity: Use the remaining pot to buy a guaranteed income for life (or a fixed term). Annuity income is taxed as earned income.
- Flexi-access drawdown: Keep the money invested and draw it down as you need it. Each withdrawal is taxed as income.
- Further lump sums (UFPLS): Take Uncrystallised Funds Pension Lump Sums, where 25% of each withdrawal is tax-free and 75% is taxed.
- Combination: Many people use a mix of drawdown and annuity to balance flexibility with security.
When Can You Take Your Pension Lump Sum?
Currently, you can access your pension (and therefore take a PCLS) from the age of 55. However, this is set to change. From 6 April 2028, the minimum pension access age will rise to 57 for most pension schemes, unless your scheme has a protected pension age. If you are approaching 55 and considering taking your pension, be aware of this upcoming change.
Important: Some workplace schemes have a protected pension age, meaning you may be able to access your pension before age 57 from 2028. Check your scheme rules carefully.
Defined Benefit Schemes: Different Rules
If you have a defined benefit (final salary) pension, the rules for tax-free cash work differently. Instead of taking 25% of your fund value, you commute part of your annual pension income in exchange for a lump sum. The commutation factor (how much lump sum you receive per £1 of pension given up) varies by scheme but is typically around £12–£15 per £1 of annual pension.
For example, if your DB pension entitlement is £20,000 per year and your scheme's commutation factor is 15, you could give up £5,000 per year to receive a lump sum of £75,000 (5,000 x 15). The tax-free element is still capped at £268,275. Whether commuting DB pension income is worthwhile depends on your individual circumstances, health, and the scheme's commutation factor.
Small Pot Rules: Pensions Under £10,000
If your pension pot is worth £10,000 or less, you may qualify for the small pot lump sum rules. Under these rules, you can take the entire pension pot as a lump sum. The first 25% is tax-free and the remaining 75% is taxed as income. Crucially, small pot lump sums do not count towards your Lump Sum Allowance of £268,275.
You can take small pot lump sums from up to three personal pension arrangements during your lifetime. There is no limit on the number of occupational (workplace) small pot lump sums you can take.
Impact on Means-Tested Benefits
Taking a pension lump sum can have significant consequences if you receive or expect to claim means-tested state benefits. These include:
- Universal Credit: Savings and capital above £6,000 reduce your UC entitlement, and above £16,000 you are disqualified entirely.
- Pension Credit: The capital rules are more generous, but a large lump sum could still affect eligibility.
- Housing Benefit and Council Tax Reduction: Similar capital thresholds apply.
- Care funding: If you spend down a lump sum, local authorities may investigate whether this was done to deliberately reduce assets to qualify for care.
If you are approaching state pension age and may need means-tested support, seek financial advice before taking a large lump sum.
Pension Recycling Rules
HMRC has strict rules against pension recycling, where you take a tax-free lump sum and then reinvest a significant portion back into a pension to gain more tax relief. If HMRC determines that recycling has occurred, the tax-free status of the lump sum can be withdrawn, resulting in a substantial tax charge. Recycling is considered to have occurred when a lump sum exceeds £7,500 and significant new pension contributions are made as a result.
Pros and Cons of Taking Maximum PCLS
| Pros of Taking Maximum PCLS | Cons of Taking Maximum PCLS |
|---|---|
| Completely tax-free up to £268,275 | Reduces the pot available for future income |
| Flexibility to invest or spend as you choose | May lose investment growth if not reinvested wisely |
| Can pay off mortgage or debts | May affect means-tested benefits |
| Inheritance planning possibilities | MPAA triggered if you enter drawdown |
| Certainty — money is in your hands | No going back once crystallised |
Frequently Asked Questions
What is the pension commencement lump sum (PCLS)?
The PCLS is the tax-free cash you can take from your pension when you first access it. You are entitled to up to 25% of your pension pot free of income tax, subject to the lifetime cap of £268,275. It must be taken at the point of crystallisation — that is, when you first access your pension benefits — and you cannot go back and take tax-free cash later if you did not do so at the start.
Can I take my entire pension as a tax-free lump sum?
No, unless your pension pot is £10,000 or less and qualifies for the small pot rules. Otherwise, only 25% of your pension (up to £268,275) can be taken tax-free. The rest is subject to income tax when withdrawn. Some people mistakenly believe their whole pension is tax-free, which is not the case for most savers.
What is the Money Purchase Annual Allowance (MPAA) and does PCLS trigger it?
The MPAA is a reduced annual allowance (£10,000 in 2025/26) that applies once you start flexibly accessing your pension. Taking a PCLS alone does not trigger the MPAA. However, if you then take any income from a flexi-access drawdown fund, the MPAA is triggered and limits future pension contributions to £10,000 per year rather than the standard £60,000.
How does PCLS affect my income tax in retirement?
The PCLS itself is tax-free, so it does not count as income and does not affect your Personal Allowance (£12,570 in 2025/26). However, any subsequent pension withdrawals, annuity payments, or drawdown income are taxed as earned income and added to any other income you receive, including the State Pension. Careful planning around when and how much you withdraw can significantly reduce your overall tax burden.
Can I delay taking my pension lump sum?
You can delay accessing your pension altogether, meaning you delay both the lump sum and any income. However, once you crystallise (access) your pension and take the PCLS, any remaining uncrystallised funds that you later crystallise will use up your remaining Lump Sum Allowance on a proportional basis. You cannot take additional PCLS from funds already crystallised without taking further income or converting to drawdown.
What happens to my pension lump sum if I die before taking it?
If you die before accessing your pension, the uncrystallised pension pot typically passes to your nominated beneficiaries free of inheritance tax (pensions are generally outside your estate for IHT purposes, though this may change from 2027). Beneficiaries can usually take the pot as a lump sum (tax-free if you die before 75, taxable if after 75), enter their own drawdown arrangement, or use it to purchase an annuity.
Related Pension Calculators
Use these tools alongside the lump sum calculator to plan your retirement income comprehensively.