For UK pension holders, PCLS is a tax-free payment that is often called ‘tax-free cash’ or ‘tax-free lump sum’. Most people can get a PCLS when they start receiving their pension benefits.
The PCLS is 25% of the value of the pension benefits being accessed. Some people may be able to receive more—for example, if you have applied to HMRC (Her Majesty Customs and Revenue) for one of the protection policies when the lifetime allowance (LTA) has been reduced.
You will have the choice to receive your funds as PCLS and to use the rest to provide taxable income when you decide to access some of your pension funds.
Not if you don’t want to. For example, if you wanted to buy an annuity you might decide that you would rather have the greater annuity value using your whole pension, rather than with 75% of your pension
‘Uncrystalized funds’ is the term used for pension funds which have not yet been accessed. PCLS is only available from uncrystalized or unused funds.
‘Crystalized funds’ are funds which have been used against the lifetime allowance and are assigned to provide pension benefits. There is no PCLS available from crystalized funds.
If you reach age 75 with pension funds you haven’t accessed, those funds will turn into unused funds and not uncrystalized funds. Ask your advisor for more details.
In the same way that you don’t normally have to access all of your pension benefits at once, you don’t have to get your PCLS all at once. You can take a PCLS every time you access new pension benefits.
The maximum PCLS you can have in total from all of your pensions is 25% of the lifetime allowance. Rules and restrictions apply so make sure to ask your advisor for more details.
If you have a certain kind of lifetime allowance protection, you may be entitled to more PCLS.
There are different kinds of protection. Most will allow you to take up to 25% of your protected lifetime allowance and not the normal lifetime allowance. Other kinds of protection may entitle you to a higher PCLS while others will give a lower percentage of the amount crystalized.
It’s usually possible to delay taking a PCLS but the law says that you must take it within 12 months of crystalizing your funds. After 12 months, the possibility to do so is lost. Ask you advisor for more details.
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In today’s complex market and regulatory environment, we understand the continued need for innovative investment solutions and implementation expertise.
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We address our clients’ key challenges and provide timely insights on a variety of topics relevant to the pension landscape, including real-time viewpoints on market and regulatory changes, liability management perspectives and corporate finance.
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