Tax-Free Pension Cash

We have had several clients contact us regarding the upcoming Autumn Statement on the 26^th November and in particular the speculation surrounding the ability to take a Pension Commencement Lump Sum payment (tax-free cash). Our position remains that we do not advocate an individual taking specific action based upon speculation.

We have produced some commentary that may prove useful. If this does prompt any questions please get in touch.

Taking tax-free pension cash before the Autumn Statement 26^th November 2025

The Government is widely expected to consider targeted pension measures in the Autumn Statement, including options that could affect the tax-free lump sum available to pension savers.

Current rules to know.

1. Tax-free lump sum: You can normally take 25% of a pension fund tax-free, with a statutory cap on tax-free lump sums currently set at £268,275.

   
   

2. Recent framework change: The old Lifetime Allowance was abolished on the 6^th April 2024, and new technical rules affect crystallisation and allowances.

Key legal and practical risks

1. Reversing crystallisation. Where an individual has taken a PCLS and then wishes to return that money to a pension, tax legislation will affect what you can do and whether you will incur a tax charge.

2. Provider rules and timing can delay or prevent withdrawals and create valuation and tax-timing problems.

Advantages of taking tax-free cash before the Autumn Statement

1. Locks in current entitlement under existing rules and avoids the risk of a reduced tax-free allowance or lower cap after the Statement.

2. Immediate liquidity to pay down high-cost debt, fund a deposit, meet one-off expenses, or make time-sensitive gifts or investments.

3. Estate and inheritance planning flexibility where funds outside the pension may be treated differently for IHT planning.

4. Control over taxable income timing if withdrawing now reduces taxable withdrawals in a later year when marginal rates or thresholds change.

Disadvantages of taking tax-free cash before the Autumn Statement

1. Permanent crystallisation trade-off: funds removed will not benefit from pension tax relief or continuing tax-efficient growth inside the pension.

2. Opportunity cost from lost compound growth and potential employer contributions.

3. Tax and re-contribution pitfalls when attempting to return money or make large future pension contributions.

4. Behavioural and timing risk of acting on speculation if final measures are milder or different than anticipated.

5. Means-tested benefits and planning interactions can be affected by holding larger cash sums outside pensions.

Treat the approaching Autumn Statement as a trigger to review and plan rather than a reason for blanket hurried action.