The pension withdrawal dilemma

Medics Wealth Management • 21 October 2025

Are you considering drawing a lump sum from your pension before the Autumn Budget?

One of the major tax benefits of saving through pensions is that, generally, 25% of the pension’s value can be drawn as a lump sum, free of income tax, up to a maximum of £268,275. From the point of view of the law, that cash is defined as a pension commencement lump sum (PCLS) which, as the name suggests, must be taken at the same time pension income starts to be drawn. In practice, the level of regular income taken can be nil and the lump sum (and accompanying income) may be drawn in stages; there is no statutory requirement for your pension pot to be converted to cash and income all at once.

The future of the PCLS is a staple of pre-Budget rumours. Forty years ago, one of Chancellor Rachel Reeves’ distant predecessors, Nigel Lawson, teased about “the anomalous but much-loved tax-free lump sum” in his Budget speech, but made no changes. In the run-up to the Autumn 2024 Budget, the fate of the PCLS was subject to more than usual speculation, given that substantial extra revenue needed to be found. However, Reeves also left the PCLS unchanged.

A recent response to a Freedom of Information request revealed the public has been taking the risk of an attack on the PCLS seriously:

In the six months to March 2025, over £10.4 billion was drawn as PCLS, more than a third above the level of the previous six months and nearly three-quarters higher than the total drawn in the half year to March 2024.
Over the entire 2024/25 financial year, the amount of PCLS withdrawn was 61% up on 2023/24. However, the number of savers making those withdrawals rose by only 29%, suggesting that the average PCLS taken was almost a quarter larger.

There is some evidence after last year’s Budget that some of those taking their PCLS regretted their actions. HMRC had to remind pension providers that “The payment of a tax-free lump sum cannot be undone.”

At this stage, nobody knows what the Budget will bring (or take away), but if you are thinking of drawing a PCLS now, make sure you also take advice before reaching a final decision.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

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