When you’re approaching retirement, you have lots of decisions to make including how to convert your pension pot into retirement income. Find out why it’s important to get help and where you can find it.
What’s in this guide
Why get help?
Unless you’re in a pension scheme (known as a ‘final salary’ or ‘defined benefit’ scheme) that pays you an income based on your salary when you retire, you’re most likely to be saving into a scheme that provides you with a sum of money (known as your pension pot).
If that’s the case, you’ll have to decide how you’re going to use your pension pot to provide an income when you retire.
There are lots of options available, some more complex than others, but deciding which is right for you isn’t straightforward.
Before you even get to that stage, there are questions you might need help with. For example:
- Can you afford to retire?
- Should you bring all your pension pots together?
- How much will your State Pension be?
Being able to answer those questions will help you make good decisions and get the best from your pension pot.
Help with the cost of living
Worrying about money because of rising rents, high energy bills or debt? If so, we're here to help.
Take the first steps to find your way forward with our guides to help you with the cost of living.
Rules for accessing your pension
In the past, when you’d taken your tax-free cash from your pension pot, you would almost certainly have had to use the rest of the money to buy an annuity. The annuity would provide you with a guaranteed income for the rest of your life.
But rules introduced in April 2015 mean that when you’re aged 55 or over, you can use your pension pot in any way you want.
But with more freedom comes more choices and more complexities. Many people might therefore benefit from getting regulated financial advice when deciding what to do with their pot.
Even if you’ve never had financial advice before, this is probably the time to do it.
Unless you’re very sure about what you want to do, getting advice might be the best financial decision you’ll ever make.
Find out more about your choices in our guide Options for using your defined contribution pension pot
Get some free help first
Before you see a financial adviser make sure you take up your free pension guidance session with Pension Wise.
This is a government-backed service that helps you understand what you can do with your pension pot and the tax implications of the various options open to you.
You can then use this information to understand more about your own financial situation and what questions you should ask an adviser if you use one.
What type of advice can you get?
If you decide to go on and take financial advice it’s important to understand what type of service you’re getting.
What can be confusing is that not all types of financial advice give you the same level of protection.
There’s plenty of information and help available about retirement products, but this might not be personalised financial advice. In other words, it will be general and not based on your own situation or circumstances.
With personalised financial advice, your adviser will take you through a fact-finding process to collect information about you.
They then use this information to assess your circumstances and give you a personalised recommendation about what they think you should do.
Any action they recommend must be suitable for you.
If this turns out not to be the case, you have legal protection and can complain about mis-selling to the firm the adviser works for.
If your complaint is turned down, you can take it to the Financial Ombudsman Service. They’ll assess your complaint free of charge.
Always makes sure the adviser and the firm they work for are regulated by the Financial Conduct Authority (FCA). If they are, they’ll be listed on the FCA’s Register of Authorised Firms. It’s important to check their authorisation before you commit to anything.
More choice, less risk
Getting financial advice isn’t just about being able to make a complaint if things go wrong.
Financial advisers providing personalised financial advice have access to a wider range of products and services than you would realistically be able to access on your own.
They’ll have expertise and qualifications in the area you need advice on, as well as knowledge of the market.
Advisers can also make sure that when plans have been made, they then stay on track to meet your objectives.
You get what you pay for
Personalised financial advice has to be paid for. Advisers must tell you how much the advice will cost and what this covers before you go ahead.
By using a qualified professional, you’re paying someone to help you avoid making expensive and sometimes life-changing mistakes.
If you decide to buy direct from providers without getting advice, still check what it’s costing you.
You might not save money by buying without advice, as intermediary or broker fees are often hidden in product charges and might not be obvious.
Even if you buy straight from a provider, there might be hidden product charges, which mean you’re not paying much less than if you had got advice.
At the very least, compare the costs of buying direct with the costs of taking advice before you make a final decision.
How do you pay for financial advice?
Financial advice about retirement options is paid for through fees. It used to be possible to pay for financial advice through commission on product sales, but that was stopped several years ago
Your adviser must give you information on their fees before you commit to taking their advice.
It’s important you agree in advance the type of advice you want so that they can give you an accurate estimate of the overall cost for the advice.
If you’re vague or unclear about your needs, it’s harder for them to estimate how much work is involved.
You can ask the adviser to break down the fees so you understand what they’ll actually be doing for you.
Also, remember to keep the cost of advice in perspective. If good advice helps sort out a complex problem that will affect your finances for many years to come, it’s money well spent.
Choosing a financial adviser
Financial advisers who provide personalised financial advice on retirement options are classified as either independent or restricted.
Independent financial advisers (IFAs) aren’t restricted in the types of products they can recommend or the providers whose products they offer.
But restricted advisers might either be restricted in the range of products they offer or the number of providers they can choose from (or both).
The main question to ask your adviser is whether they offer a ‘whole of market’ service.
This means whatever product or service is being recommended, your adviser can choose from a wide range of product providers in that particular market and not just one or two. That way, you know you’ll be getting the widest choice.
Always makes sure the adviser and the firm they work for are regulated by the Financial Conduct Authority (FCA). If they are, they’ll be listed on the FCA’s Register of Authorised Firms. It’s important to check their authorisation before you commit to anything.
How to find a financial adviser who specialises in retirement advice
Find a retirement adviser
You can find FCA-registered financial advisers who specialise in retirement planning in our Retirement adviser directory
