Do I need pension financial advice?

Navigating pension planning can be complex and often presents a variety of questions. Reaching retirement can be an exciting prospect after a long time working, but also, for many, can be a nerve-wracking time, demanding careful consideration to ensure you have financial security throughout retirement. With several options, strict regulation and variables to contemplate, it’s important to get it right.  

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Why do I need a financial adviser for my pension?

Your pension can be the largest investment you ever make, but they are complex, with various types of schemes, so it’s important to understand what you have, and how you can use this to meet your goals and individual objectives. Working with a financial adviser can help to work through the jargon and ensure that you can maximise your pension wealth both now and into the future. An adviser can help you manage any risk you take within your pension, as well as get a clearer understanding of tax efficiencies to give you the best opportunity of reaching your retirement goals. 

When is a financial adviser for my pension required by law?

In most cases, it’s a choice whether you take pension financial advice, however, there are a few exceptions which vary depending on the type of pension you hold. 

There are two types of pensions; defined benefit pensions (also known as a final salary scheme, but also include public sector schemes for example Career Average Revalued Earnings, or CARE) and defined contribution pensions. A defined benefit pension pays a secure income for life, based on a number of factors including years' service and position held at your place of work. A defined contribution scheme (which is the more common these days) can be a private or work-based pension, with the amount you receive from your pension based on the total amount contributed by retirement.  

If you are considering transferring, or cashing in, a defined benefit pension, you are legally required to seek financial advice when the transfer value is over £30,000. Defined benefit pensions are hugely valuable, providing a guaranteed income for life, therefore it’s vital that you make the correct decision with these types of pensions. The regulator, the Financial Conduct Authority (FCA), requires you to take financial advice to safeguard you from making poor decisions. As this area of advice is complex, it does usually carry a high adviser charge to explore the various options available to you.  

 In some circumstances, defined contribution pensions may require you to take advice. If you have a pension that has a Guaranteed Annuity Rate (GAR) or guaranteed minimum pension that you’d like to transfer and these benefits are valued at over £30,000, you must legally take advice to protect you from making an irreversible decision that negatively impacts your financial future.

Defined contribution pensions, sometimes also known as money purchase pensions, can also come with a variety of weird and wonderful benefits, which include safeguarded benefits as outlined above, which may mean you legally must seek financial advice. Within defined contribution pensions, you build up an investment pot which you are then able to access from normal minimum retirement age, which is currently 55, but rising to 57 by April 2028. At this age, you can draw on your pension flexibly, with 25% tax free and the remaining 75% taxable at your marginal rate. You can draw the full 25% as one lump sum, or a smaller amount at a time until used up, draw a lump sum payment, known as UFPLS (uncrystallised fund pension lump sum) of which 25% is tax free, and 75% taxable. These rules are known as Pension Freedoms rules and were brought in back in 2015. It’s worth noting however, that just because these rules apply now, doesn’t mean your pensions allow for this, so it is worth finding out.

Understanding the Rules

Within defined contribution pensions, you build up an investment pot which you are then able to access from normal minimum pension age, which is currently 55, but rising to 57 from 6 April 2028. At this age, you can draw on your pension flexibly, with up to 25% usually available tax free, subject to the lump sum allowance, and the remaining withdrawals taxable at your marginal rate. The standard lump sum allowance is currently £268,275, although some people may have a higher protected allowance. You can draw the full 25% as one lump sum, or a smaller amount at a time until used up. You may also be able to take lump sum payments known as UFPLS, or uncrystallised funds pension lump sums. With UFPLS, 25% of each payment is usually tax free and 75% is taxable as income. These rules are known as Pension Freedoms rules and were brought in back in 2015. It’s worth noting however, that just because these rules apply now, doesn’t mean your pensions allow for this, so it is worth finding out. 

Do I need a financial adviser to withdraw from my pension?

Although there is no legal requirement to take pension financial advice when withdrawing money from your pension, it is often prudent to do so. Pensions can be used extremely efficiently to fund retirement, although it does depend on what options you have available to you. As mentioned above, Pension Freedoms rules came into force in April 2015, meaning you can access your pension flexibly, as and when you want to. Not all schemes had to adopt these rules however, so making sure your pensions are structured correctly before you draw on them can really impact your retirement plans.  

When you reach retirement, you move from the saving phase of life to the spending phase, accumulation to decumulation, and so it’s important to know how much you have, and how best to draw on your assets efficiently to maximise what you have. A financial adviser can help with this by building a retirement plan for you, using such tools as cash flow planning, making sure you can meet your goals throughout retirement. Understanding what you have, and how you can best use each asset comes down to the options you have for these, and a financial adviser can help you to understand this. A big worry for many is the thought of running out of money, and cash flow planning can alleviate these fears by showing what is possible now and in the future. 

Can I withdraw my private pension before 55?

In most cases, you cannot withdraw money from a private pension before age 55 without facing significant tax charges. This age is known as the normal minimum pension age and it is due to rise to 57 from 6 April 2028. There are limited exceptions, such as serious ill health or a protected pension age within your scheme, but these rules can be complex. You should also be cautious of anyone suggesting you can access your pension early through a loan, loophole or special arrangement, as this can be a sign of a pension scam.

When can I withdraw my pension?

Most people can start withdrawing from a private pension from age 55, rising to 57 from 6 April 2028, as mentioned above. This does not mean you have to take your pension at that age. You can usually leave it invested until you need it, which may give your pension more time to grow. Your options will depend on the type of pension you have and the rules of your scheme, so it is important to understand what is available before you decide when to take money out.

Can I withdraw my pension fund while working?

Yes, you can usually withdraw money from your pension while continuing to work, provided you have reached the minimum pension age and your scheme allows it. This can be useful if you want to reduce your hours or phase into retirement, but taking taxable pension income while you are still earning can push you into a higher tax band. It may also trigger the Money Purchase Annual Allowance, which can reduce the amount you can contribute to defined contribution pensions while still receiving tax relief to £10,000 a year.

Can I withdraw 25% of my pension tax-free every year?

You can usually take up to 25% of your pension as a tax-free lump sum, but this does not normally mean you can take 25% of the same pension tax free every year. The tax-free amount is usually linked to the value of the pension being accessed and is subject to the standard lump sum allowance, currently £268,275. Some people take their tax-free cash in one go, while others take it gradually by accessing parts of their pension over several years. 

What are the benefits of pension financial advice?

Pensions are long term investment vehicles, and a financial adviser can help you make informed decisions and recommend an appropriate investment strategy for you, taking into account how much risk you are comfortable with. 

Tax rules can be complex with pensions, and working with a pension financial adviser can help you understand how much you can put into your pension now, but also how you draw on your pension efficiently when you retire, to make the most of the tax benefits. 

Currently pensions are an effective tool for estate planning purposes, passed on as you wish when you die. However this is due to change from 6 April 2027, when most unused pension funds and death benefits are expected to be brought within the value of a person’s estate for inheritance tax purposes. This could affect how pensions are used within estate planning and may make it even more important to review beneficiary nominations and the wider retirement plan.

Increasingly people are turning to (Artificial Intelligence) AI for financial advice due to its quick and accessible nature. This can be useful for general information around finances, but it’s important to bear in mind that any ‘advice’ offered by AI regarding your specific situation can be unreliable (as shown by the frequent ‘hallucinations’ that AI is prone to) and not subject to any of the regulations that registered financial advisers must follow. These regulations were put in place to protect the consumer against advice that could be misleading or even malicious and the Financial Conduct Authority (FCA) is currently investigating ways to regulate AI financial advice. AI is not currently a substitute for regulated financial advice in its current form, and if you are considering making any important financial decisions based on the recommendations of these AI sources, it is strongly recommended to reach out to a financial adviser instead. 

A financial adviser will keep up to date with legislation surrounding pensions, which can change. We have seen many changes with pensions over the past decade, with the introduction of auto-enrolment, Pension Freedoms rules and now with confirmed changes to the inheritance tax treatment of most unused pension funds and death benefits from 6 April 2027. These changes can really affect retirement plans. Working with an adviser will ensure that you are kept up to date with these changes, and act where required.

It’s worth noting that working with a financial adviser doesn’t come for free so there will be additional costs, but this cost should provide you with long term benefits. Having that trusted person to manage your pension on your behalf, so you don’t have to worry about it and can enjoy living your life, can provide immeasurable value. 

How we can help

Working with the Private Office, either as a short term, one off or an ongoing basis, can help you achieve your goals, whether you want to retire earlier than anticipated, or start to work in a different way, phasing retirement over time. Having the knowledge that your pensions are working as hard for you as they can, can really provide peace of mind in the long run. Having a well-thought-out retirement plan that a professional is keeping track of can reduce stress and ultimately help achieve your goals. 

At The Private Office, everything starts with building your financial plan, understanding what you want to achieve in life, and then finding the solution which means your money will support you. Pensions are so highly regulated but unfortunately that comes with a huge amount of industry jargon, so part of our job is making sense of this for you, making sure you understand what you have but ultimately ensuring that you don’t have to worry and instead can enjoy your life before and into retirement. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The information in this article is based on current laws and regulations which are subject to change as at future legislations.

A pension is a long-term investment. The value of an investment and the income from it could go down as well as up.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

The Financial Conduct Authority (FCA) does not regulate tax advice, estate planning or cashflow modelling.