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QROPS and the Pension Tax Free Lump Sum


The Pension Tax free lump sum , known as the Pension Commencement Lump Sum ( PCLS ), has long been an incentive to encourage people to fund or join pensions in the UK.

Pension Tax Free Lump Sum

If we go back to 1988, I can recall the sale of the Pension Tax Free Lump Sum as a “Pension Mortgage”. The idea being to build up a fund that would provide a Pension Tax Free Lump Sum to clear the mortgage at retirement and leave funds for a decent retirement.  In other words, very much part of the family’s long term financial planning.

Those in final salary pensions can look at the offer of the Pension Tax Free Lump Sum and see if it is better to take a higher income for life, rather than the Pension Tax Free Lump Sum and a reduced income.. Will this choice to take a Pension Tax Free Lump Sum still be with us in the future?

Budget 2016

Ex-Pensions Minister, Steve Webb, has really put the cat among  the pigeons by suggesting that George Osborne will abolish the Pension Tax Free Lump Sum in the Budget.

Retrospective Legislation

The UK has never really gone down the route of retrospectively legislating when it comes to pension rules. There have been considerable numbers of pension rules that have been thrown at the public from 1987 onwards, that affect the calculation of the  Pension Tax Free Lump Sum. However, these rules have allowed people to effectively “lock into” the Pension Tax Free Lump Sum rules that they signed up to at the time.

Pension Tax Free Lump Sum or Tax Free Cash Protection has been a major feature of recent pension planning with the every reducing Lifetime Allowance


If such restrictions on the ability to access the Pension Tax Free Lump Sum from UK pensions were announced , how would this affect QROPS? Would this be extended to offshore pensions too?

Would the Chancellor continue to allow QROPS to have a Pension Tax Free Lump Sum, and only penalise UK pensions? To me, this seems unlikely but stranger things have happened!

Bear in mind, Steve Webb is now a director of Royal London- a pension provider- and some have suggested his views may be influenced by his current role. However, on the other hand, he was the most respected Pension Minister in recent years and so we ought to take note of his comments.

Kneejerk Reactions

Already, it is clear that some on social media are sounding alarm bells about the Pension Tax Free Lump Sum as an excuse to get people to jump into the abyss.

While the Chancellor may look to  prevent access to a Pension Tax Free Lump Sum for the future, wouldn’t stopping the ability to access the Pension Tax Free Lump Sum on pensions earned to date be a step too far?

Surely, such retrospective legislation would and not be imposed and, if imposed, surely there will be a time for pension investors to take advice and considered action.

If nothing else, Steve Webb has triggered considerable debate that George Osborne should take not of. The Pension Tax Free Lump Sum is something many believed to be sacrosanct.


The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.


Chris Lean

Chris is a Chartered Financial Planner who writes blogs and articles to simplify and explain some of the financial issues that affect UK expats. Subjects include; hot topics, regulation and the ever-changing world of finance.

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