Are you thinking about withdrawing a lump sum from your pension ahead of the Autumn Budget?
One of the key tax advantages of pension savings is the ability to take up to 25% of your pension pot as a tax-free lump sum, known officially as a Pension Commencement Lump Sum (PCLS). This is capped at £268,275. Legally, the PCLS must be taken when pension income begins, but in practice, you can draw the lump sum in stages, even if you’re not taking regular income at the same time. There’s no requirement to cash in your entire pension pot all at once.
The future of the PCLS is often the subject of speculation before each Budget. Back in the 1980s, Chancellor Nigel Lawson famously referred to it as “anomalous but much-loved,” but left it untouched. In the lead-up to the Autumn 2024 Budget, rumours swirled again, especially with the government under pressure to raise revenue. Yet Chancellor Rachel Reeves also chose not to make changes.
Still, many pension savers weren’t taking any chances.
A Freedom of Information request revealed a surge in PCLS withdrawals:
- £10.4 billion was drawn in the six months to March 2025—over 33% more than the previous half-year, and almost 75% higher than the same period in 2024.
- For the full 2024/25 tax year, PCLS withdrawals were up 61% compared to 2023/24. Interestingly, the number of people making withdrawals rose by only 29%, meaning the average lump sum taken was nearly 25% larger.
However, not all those who acted early were happy with their decision. After the Budget, HMRC had to remind providers that a tax-free lump sum cannot be reversed once paid.
The Takeaway
If you’re considering drawing your PCLS now, it’s essential to seek expert financial advice before making a final decision. Tax rules can be complex, and the consequences of acting too soon, or too late, can be significant.
Remember: Tax treatment depends on individual circumstances and may change. And importantly, the Financial Conduct Authority does not regulate tax advice.
10th October 2025
