If you have a pension ‘pot’ type of pension, you can take as much or as little cash out of it as you like, as long as you’re aged 55 or over (rising to 57 in 2028).
Well, that’s the theory anyway. In practice, it’s not that straightforward and there are times when you have to take financial advice before you’re allowed to take money out. Most of the time however, advice is not a legal requirement, although it is often recommended as it can save you money in the long term.
Here, we look at what the rules say, and where to find advice if you need help working out the best options to suit your needs.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation* with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
If you have a defined contribution pension
If you have a defined contribution – or pension pot type of pension – the rules allow you to take as much or as little out of it as you want.
However, if your pension is worth more than £30,000 and has what are known as ‘safeguarded benefits’ you cannot take money out of unless you’ve taken financial advice These benefits are typically a guaranteed annuity rate, which is generally much higher than any annuity rate you would get in the open marketplace today, or a guaranteed minimum pension.
Only some defined contribution (DC) pensions have safeguarded benefits, with these types of benefits more commonly associated with defined benefit pensions.
If your defined contribution pension doesn’t have safeguarded benefits there isn’t usually any requirement to seek professional advice on your retirement savings, but there are often plenty of good reasons to do so.
For example, you might be thinking about getting advice if you have a few different pensions which you are considering consolidating, but you aren’t sure whether it’s the right decision to move one pension plan – or you need help deciding which plan to move to. Read more about the pros and cons of consolidating your pension in our article Should I consolidate my pensions?
You may also want to consider seeking advice if you’re worried about how upcoming changes to pensions announced in the Budget might affect you, specifically as it’s been proposed that pensions should be brought into the scope of Inheritance Tax from April 2027. You can find out more about these proposals in our guide Budget 2024 pension changes.
Learn more about times it might be useful to get pension planning help in our article When should I get pension advice?
If you have a final salary or defined benefit pension
If you have a final salary or other salary-related pension (otherwise called a ‘defined benefit’ pension), where the amount you get is linked to your salary, you can’t take money straight out of your pension.
If you want to take advantage of pension freedoms, you have to transfer your salary-related pension to a pension pot type of pension (otherwise called a ‘defined contribution’ pension). You have to take financial advice if you want to do this and your final salary pension is worth more than £30,000.
The reason you have to take financial advice is that the pension company must be able to show that you understand what you’d be giving up by transferring your final salary pension. In most cases it will definitely be a bad idea to transfer a final salary pension to a pension pot type of scheme, as you’ll be giving up valuable benefits. However, if, for example, you’re ill and don’t have long to live, you might decide you want to do this so you can get as much of your pension fund as you can, rather than having a steady – but lower – income.
In the 1980s there was a pensions mis-selling scandal where people were told to transfer their pension from good final salary pensions, with the promise of higher returns that never materialised. The pensions industry ended up paying out millions of pounds in compensation so, understandably, it wants to avoid accusations of mis-selling again.
How much will pension advice cost?
The cost of independent financial advice varies, but, according to Unbiased, which is the organisation representing independent financial advisors, it’ll usually set you back between 1% and 2% of the asset in question. For example, if you wanted advice on a pension with a value of £300,000, you’d therefore typically be looking at charges of around £3,000.
Although financial advice comes at a cost, the aim is that ultimately the course of action recommended by your advisor should leave you better off overall. Read more in our article How financial advice could boost the value of your pension by £47k.
If you want advice on what to do with your pension but are worried about the cost, you may be able to take up to £500 out of your pension three separate times before you reach the age of 55 if you use this money to pay for advice about your pensions. This money, known as the Pensions Advice Allowance, is paid directly from your pension provider to the financial adviser, and you don’t have to pay tax on the money taken out of your pension. However, pension trustees and scheme providers don’t have to offer the allowance if they don’t want to, so you’ll need to check if yours does.
Learn more about how this allowance works in our guide What is the Pensions Advice Allowance?
Where can I get pension advice?
If you are aged 50 or above, you can get free guidance on the options available to you from the Government’s Pension Wise service. However, if you want personal recommendations or advice about your specific circumstances, you’ll need to seek professional financial advice.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation* with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
Rest Less Money is on Instagram. Check out our account and give us a follow @rest_less_uk_money for all the latest Money News, updated daily.