Pension Commencement Excess Lump Sum (PCELS)

Following the abolition of the Lifetime Allowance a new type of authorised lump sum was introduced to assist pension schemes where a member would ordinarily be entitled to a tax free lump sum from a scheme (such as older DB schemes with automatic tax free cash entitlement).

Historically these could have been paid as a LTA Excess Lump sum, therefore a new lump sum was required for instances such as this. Reference in a schemes rules to payment of a LTA excess lump sum can be read as availability of a PCELS.

It is also important to be aware that a PCELS payment is not a relevant BCE. 

Broadly speaking the conditions to pay a PCELS mirror those for the payment of a Pension Commencement Lump Sum (PCLS), with two main changes. The member does not need to have available LSA or LSDBA , and there is no link to the “permitted maximum” in the PCLS conditions.

The conditions are;

1. The individual must become entitled to the lump sum in connection with becoming entitled to a ‘relevant pension’ or have died after having become entitled to the relevant pension in connection with which it was anticipated that the individual would become entitled to it.

2. All of the individual’s lump-sum allowance and all of the individual’s lump-sum and death-benefit allowance must have been used up.

3. The payment must be made within an 18-month window beginning six months before the member becomes entitled to it and ending 12 months after the member becomes entitled to it.

4. It must not reduce the rate of any pension to which the member has actually become entitled or extinguish the member’s entitlement to payment of any such pension in the future.

5. It must not be paid before the member has reached normal minimum pension age unless they satisfy the ill-health condition.

6. The lump sum is not an excluded lump sum for the purposes of LSA and LSDBA.*

* for a PCELS to be paid there can be no other authorised lump sum that the scheme could use to pay this. The ability for another lump sum to be paid is based on what is legally possible, not by what the individual scheme rules allow. As an example if a scheme can offer an Uncrystallised Funds Pension Lump Sums (UFPLS) then there would be no possibility of using the a PCELS as an UFPLS can now be paid with no tax-free element. Therefore, it’s more likely that these will be paid by Defined Benefit schemes (although not exclusively).

It is subject to income tax at the members marginal rate.

If there is any LSA/LSDBA remaining, that portion of the payment will use up the remaining allowances and is deemed to be a PCLS.