Take PCLS from DC Pension to top-up flexible ISA - Thoughts appreciated

trust.no.1

Hi Everyone,

I would appreciate the thoughts of the forum.

My situation is that I have a DB pension and DC pension both related to a previous employment. I also have another DC pension which I currently pay into via salary sacrifice from my current employment.

I am northwards of 55 in age  . I can at the moment take the maximum PCLS amount but this would mean some commutation of my DB pension. Ideally I would like to work on until I achieve my first goal of being able to take the full PCLS maximum without the need for any commutation of my  DB pension. My second goal is to continue working until I no longer enjoy it. My main plan for the PCLS is to pay off my mortage after the fix rate term ends.

At the time I took out my mortgage last year earlier this year I used 80K of my flexible cash ISA as a deposit. As the ISA is flexible I have up to the start of the next tax year to re-add this 80K in addition to the 20K for the current tax year. 

I am thinking of crystalizing 320K of one of my DC pensions (the one I no longer pay into) giving me 80K tax free - which I place into my cash ISA. The remaining 240K of crystalized funds goes into a flexi-access drawdown pot which I leave untouched so as not to trigger the MPAA. I then continue to contribute into my other DC pension (taking full advantage of salary sacrifice tax relief while it lasts) for the remainder of my working years. The flexi-access drawdown pot and the remaining uncrystalized funds should continue to benefit from investment growth.

I'm leaning more and more towards this option as no doubt next year there will be more pre-budget rumours of PCLS reductions. I woud hope that when/if this eventually happens there will be transitional protections - but who knows?

I would appreciate the thoughts of the forum as to whether there are any glaring flaws to my plan.

Dazed_and_C0nfused

Which plan, the one in your post title or the one detailed in the post itself?

Take PCLS from DB Pension to top-up ISA - Thoughts appreciated

I am thinking of crystalizing 320K of one of my DC pensions (the one I no longer pay into) giving me 80K tax free - which I place into my cash ISA.

trust.no.1

Dazed_and_C0nfused said:

Which plan, the one in your post title or the one detailed in the post itself?

Take PCLS from DB Pension to top-up ISA - Thoughts appreciated

I am thinking of crystalizing 320K of one of my DC pensions (the one I no longer pay into) giving me 80K tax free - which I place into my cash ISA.

LOL! Sorry. I caught my error shortly after my post and corrected my title, but you evidently caught it before my correction was applied! 

QrizB

trust.no.1 said:

At the time I took out my mortgage last year I used 80K of my flexible cash ISA as a deposit. As the ISA is flexible I have up to the start of the next tax year to re-add this 80K in addition to the 20K for the current tax year.

If you withdrew from your flexible ISA during 2024, you've missed your chance. A new tax year started in April 2025.

https://www.gov.uk/individual-savings-accounts/withdrawing-your-money

If your ISA is ‘flexible’, you can take out cash then put it back in during the same tax year without reducing your current year’s allowance. Your provider can tell you if your ISA is flexible.

trust.no.1

QrizB said:

trust.no.1 said:

At the time I took out my mortgage last year I used 80K of my flexible cash ISA as a deposit. As the ISA is flexible I have up to the start of the next tax year to re-add this 80K in addition to the 20K for the current tax year.

If you withdrew from your flexible ISA during 2024, you've missed your chance. A new tax year started in April 2025.

https://www.gov.uk/individual-savings-accounts/withdrawing-your-money

If your ISA is ‘flexible’, you can take out cash then put it back in during the same tax year without reducing your current year’s allowance. Your provider can tell you if your ISA is flexible.

Sigh - I'm losing the plot here - 2 mistakes in the same post! 

I withdrew the funds from my cash ISA during this current tax year 2025 - after April 6th. I have until April 5 2026 to replenish.

Sorry about that.

Marcon

trust.no.1 said:

I'm leaning more and more towards this option as no doubt next year there will be more pre-budget rumours of PCLS reductions. I woud hope that when/if this eventually happens there will be transitional protections - but who knows?

I would appreciate the thoughts of the forum as to whether there are any glaring flaws to my plan.

Generally not a good idea to plan on the basis of possible future rumours. I'd stick the facts as they currently exist - you seem to be having enough trouble with those!!

More seriously, your plan sounds pretty sensible.

Notepad_Phil

trust.no.1 said:

...

I would appreciate the thoughts of the forum as to whether there are any glaring flaws to my plan.

My only potential concern is that you are taking £80k out of presumably invested funds but then putting it into a Cash ISA - not a problem if you have a need for that amount of cash in the next few years or is done as part of a knowing rebalancing of your assets, but could be an issue if you're just going to leave it as cash and it gets hit by inflation for a few years.

ali_bear

I don't know why you think your pension money is better in an ISA than being left in the pension? 

If you need that 80k now it would be understandable, but if you're just going to replenish your ISA I don't see the point in breaking open the retirement piggybank. 

Albermarle

I'm leaning more and more towards this option as no doubt next year there will be more pre-budget rumours of PCLS reductions. I woud hope that when/if this eventually happens there will be transitional protections - but who knows

As there were rumours before the last and this budget, and nothing is happening ( tbc tomorrow) I can not see any real chance of it ever happening. Especially as inflation has significantly reduced the real value of the £268K limit and will continue to do so. However the latter point can be a good reason not to hang about too long, if you are likely to be anywhere in sight of that limit. 

I am northwards of 55 in age   . I can at the moment take the maximum PCLS amount but this would mean some commutation of my DB pension. Ideally I would like to work on until I achieve my first goal of being able to take the full PCLS maximum without the need for any commutation of my  DB pension

Just to clear on definitions. Commutation of a DB pension is when you take a PCLS in return for a reduced pension ( whenever you take it ). 
If you mean the pension being reduced because you take it earlier than the normal retirement date, that means it will be subject to an Early Retirement reduction ( not commutation). 

trust.no.1

Albermarle said:

I am northwards of 55 in age   . I can at the moment take the maximum PCLS amount but this would mean some commutation of my DB pension. Ideally I would like to work on until I achieve my first goal of being able to take the full PCLS maximum without the need for any commutation of my  DB pension

Just to clear on definitions. Commutation of a DB pension is when you take a PCLS in return for a reduced pension ( whenever you take it ). 
If you mean the pension being reduced because you take it earlier than the normal retirement date, that means it will be subject to an Early Retirement reduction ( not commutation). 

Thank you Albermarle.

I am northwards of 55 and very close (months) to the NRA for my DB pension. So a reduction in my DB pension due to early retirement factors will not apply when I eventually draw my benefits.

I do mean commutation. If I were to take the 268K PCLS maximum from my 3 pensions at this very moment, I would need to give up some some of my yearly (indexed) DB pension in return for a higher PCLS even if I take the maximum PCLS from my 2 DC pensions. My goal is to continue contributing into my DC pensions so that no commutation of my DB pension will be necessary to withdraw the PCLS maximum of 268K.

trust.no.1

Notepad_Phil said:

trust.no.1 said:

...

I would appreciate the thoughts of the forum as to whether there are any glaring flaws to my plan.

My only potential concern is that you are taking £80k out of presumably invested funds but then putting it into a Cash ISA - not a problem if you have a need for that amount of cash in the next few years or is done as part of a knowing rebalancing of your assets, but could be an issue if you're just going to leave it as cash and it gets hit by inflation for a few years.

I plan to pay off my mortgage when the fixed term ends. I will definitely be using the cash before inflation erodes its value away!

I appreciate that the money has a greater chance of beating inflation if left invested in the pension, however I feel a bit exposed as my pensions and the potential PCLS form the majority of my assets. I built up my pensions through years of diligent saving (thanks in part to this forum) through salary sacrifice. Now that I am close to reaping the rewards the yearly speculation about PCLS cuts is unnerving.

Taking this opportunity to place a chunk of the PCLS into my Cash ISA gives me peace of mind, and of course I can transfer it into my Stocks and Shares ISA going forward should I wish.