User:RetiredRichard/sandbox

=Pension Commencement Lump Sum=

Overview
Pension Commencement Lump Sum (also shortened to PCLS) is the term now used in the UK Regulated Pension Regime for the one-off chance to take a tax-free lump sum of up to 25% of the value of a saver’s pension pot.

After 6th April 2011
From 6 April 2011, Pension Commencement Lump Sum is a lump sum benefit paid to a member of a registered pension scheme in connection with an arising entitlement to a pension benefit (other than a short-term annuity contract), and which meets the conditions detailed in paragraphs 1 to 3 of Schedule 29 to the Finance Act 2004.

Before 6th April 2011
Before 6 April 2011 a lump sum benefit paid to a member of a registered pension scheme (aged under 75) in connection with an arising entitlement to a pension benefit (other than a short-term annuity contract), and which meets the conditions detailed in paragraphs 1 to 3 of Schedule 29 to the Finance Act 2004.

Key Conditions
The normal Pension Saver must therefore satisfy all of the following conditions:


 * 1) 	S/He must have reached minimum pension age. This will usually be 55, but some occupations have lower ages and there are special provisions for ill-health.
 * 2) 	S/He must be putting a relevant pension into payment.
 * 3) 	It must be paid within 3 months of putting the pension into payment.
 * 4) 	all or part of his/her Lifetime Allowance must be available to the Pensioner.
 * 5) 	it must not exceed the Permitted Maximum.
 * 6) 	it must not be an Excluded Payment.

Maximum Pension Commencement Lump Sum
There may be a number of ways to calculate the maximum Pension Commencement Lump Sum, but once the payment qualifies as a Pension Commencement Lump Sum it is automatically U.K. Tax-free in the hands of the pension saver. Most Pensioners seek to maximise their Pension Commencement Lump Sum for that reason, but this will not always be the best option. Independent_Financial_Advisors regulated by The Financial Services Authority have the monopoly on advising whether a member should opt to take tax-free cash and, if so, in what proportions. Whilst tax-free cash is often useful, its attraction should be balanced with the pensioner’s anticipated longer term financial needs in retirement.

The calculation of the Maximum Pension Commencement Lump Sum can be quite complex where a pension saver has rights under both defined benefit and money purchase pensions.

Age 75
Most savers take their Pension Commencement Lump Sum before they reach 75 years of age. When entitlement to a pension commencement lump sum arises on or after 6 April 2011, the new legal rules permit payment after age 75. Anyone wanting to put off taking a pension commencement lump sum until after age 75, should take independent expert advice from an Independent Financial Adviser about “designation” well before his/her 75th Birthday. Since not all pension providers permit postponement after 75, it may be necessary before the pensioner attains 75 for his/her Independent Financial Adviser to transfer the pension savings to another provider whose internal rules permit this. Whilst the Tax Rules permit transfer, it can be quite a lengthy process in practice and involve investment timing issues (some Providers turn all the pot into cash and transfer a monetary sum to the new provider).

Death
In certain circumstances, a payment representing an intended Pension Commencement Lump Sum can be paid after death. This can apply where a payment was due under Pension Scheme Rules, but entitlement under the Tax Rules was not established before the member died.

If the deceased pensioner had not become “entitled” to a Pension Commencement Lump Sum before his or her death, then no Pension Commencement Lump Sum will be paid to his or her estate.

If he or she had become entitled before death, payment of the pension commencement lump sum may be made to the estate of the deceased member. Provided the deceased’s lifetime allowance is not exceeded, the Pension Commencement Lump Sum remains tax-free on payment into the estate. Therefore if the beneficiaries entitled to the estate are the same persons entitled to the pension pot, taking the Pension Commencement Lump Sum can save tax - given the current rate of Inheritance Tax (IHT) is 40% after the Nil Rate Band and exemptions may apply (such as the IHT spouse exemption ) and the exit tax charge on payment to the deceased’s beneficiaries from the pension pot is 55%.