A pension commencement lump sum is the tax-free cash a saver can take when first accessing a defined contribution or defined benefit pension. It is usually up to 25% of the pot, taken at the point benefits begin.
In one line: A pension commencement lump sum is the tax-free cash, usually up to 25%, taken when a pension is first drawn.
How a pension commencement lump sum works
The lump sum is governed by HMRC pension tax rules. Since the lifetime allowance was abolished, tax-free cash is capped by the lump sum allowance of 268,275 GBP for 2026-27 (HMRC), unless protections apply.
For example, a 160,000 GBP defined contribution pot allows up to 40,000 GBP tax-free, leaving 120,000 GBP to provide taxable income through drawdown or an annuity.
Taking the cash can be done in one go or in stages, with each slice releasing 25% tax-free against the linked taxable amount.
PCLS vs the rest of the pension
The pension commencement lump sum is the slice that comes out free of income tax. The remaining 75% is taxed as income when withdrawn.
It is sometimes called tax-free cash. The wider lifetime allowance abolition changed how the cap is measured, but the 25% principle on most pots is unchanged.
Primary source: HMRC: Pensions Tax Manual