Our statement explains how FCA rules on cancellation rights apply, complementing HMRC’s statement on tax treatment of tax-free pension lump sums.

On 25 September 2025, HMRC published Newsletter 173 explaining:

• How tax legislation applies to tax-free pension lump sums, and
• The tax implications when lump sums are returned to pensions.

To support firms in understanding how this interacts with FCA requirements, we are setting out how our existing rules on cancellation rights apply in these situations.

FCA rules on cancellation rights

Under FCA rules, consumers generally have the right to cancel certain contracts, typically within 30 days. However, this right does not apply in all circumstances.

• Simply accessing tax-free cash (Pension Commencement Lump Sum – PCLS) does not, on its own, trigger cancellation rights.
• Our rules do not exempt firms from HMRC requirements, so firms must consider both when structuring contracts.

Specified cancellable contracts

Our rules (COBS 15.2) set out which contracts carry cancellation rights. In pensions and retirement, this includes:

• pension transfer contracts, and
• contracts to join a personal pension scheme.

A contractual term allowing someone to take a PCLS is not listed as cancellable in COBS 15.2. This means that taking a PCLS alone does not create cancellation rights.

Structuring PCLS

Firms can choose how to structure PCLS in their contractual arrangements. In doing so, they should consider the interaction with tax legislation.

Key points:

• Taking a PCLS and designating funds for drawdown are separate activities. They can occur independently or together.
• Drawdown can be designated up to 12 months before or 6 months after taking a PCLS, or without taking a PCLS at all.
• A PCLS can also be taken alongside an annuity.

Firms take different approaches, for example:

1. The original pension contract may already allow PCLS, drawdown, and income withdrawals without creating a new or varied contract.
2. A firm may choose to issue a separate contract for PCLS, or include it in the same contract as drawdown/annuity but limit cancellation rights only to those drawdown/annuity options. In such cases, no cancellation rights apply to the PCLS itself.
3. Alternatively, PCLS may be provided under:
   1. a contract to join a pension scheme,
   2. a pension transfer contract, or
   3. a contract varying an existing pension scheme the first time income withdrawals are exercised.

Unless cancellation rights are explicitly limited, the firm will be considered to have voluntarily extended them to all elements of that contract, including PCLS. Our rules do not prevent firms from offering cancellation rights more broadly than required, but they must consider the tax implications of doing so.

Returning PCLS to a pension

Where a consumer has taken a PCLS and later wishes to return it to their pension, tax legislation determines what can be done and whether tax charges apply. HMRC’s Newsletter 173 provides further details.