To be fair, when it comes to pensions this term is pretty straightforward – it almost describes exactly what it means!
The Pension Commencement Lump Sum refers to the lump sum of money you can withdraw from your pension pot when you retire. But that's not quite the full story…
When you retire, you can normally take up to 25% of your pension pot as a tax-free lump sum (some older pensions might allow you to take more). This sum can be used for whatever you like: a round-the-world trip or to repay your mortgage – it's up to you! The remaining amount of your pension is then used, whether to buy an annuity or otherwise, to provide an income in retirement.
The more you take out of your pension pot as a lump sum, the less you will have remaining to provide you with income. You don't have to take all, or any, of your pot as a Pension Commencement Lump Sum, so think carefully before you do!
If your pension pot is £18,000 or less you may be able to take all of it as a lump sum by way of Trivial Commutation. Only the first 25% of this will be tax-free though; the rest will be subject to income tax.
Get Annuity Quotations from Leading ProvidersCompare Annuity Rates
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.