Four reasons why it’s vital that you get advice before taking retirement cash

Your pension is likely to be one of the biggest assets you ever own. So, it makes sense that you’d take advice from an expert before you come to draw it.

However, new research from the Association of British Insurers (ABI) reveals worrying levels of people accessing their pension savings without advice, potentially putting a lifetime of saving at risk.

More than a third of all people who accessed their pension during a six-month period in 2018, did so without first taking advice.

Taking advice, before and on retirement, can help you to achieve your desired standard of living post-work. We look at these worrying figures and outline four reasons why taking pension advice is so important.

34% of people access their retirement savings with no advice

The ABI analysis found that more than 62,000 people accessed some of their pension via drawdown for the first time between April and September 2018, but 34% didn’t take any form of financial advice.

That equates to a total of 21,000 people who accessed a record average pension fund size of £120,000 without ever having spoken to a financial adviser.

Yvonne Braun, ABI’s Director of Long-Term Savings Policy, said: “Pension freedoms gave consumers many more options and flexibility in their retirement, but with greater choice comes greater risks.

“To see levels of advice hitting new lows is disturbing and risks leaving thousands of elderly consumers facing poverty later on in their retirement. New problems require new solutions, and empowering consumers to make the right decisions for them is our priority at the ABI.”

Accessing your pension savings without advice means you could run the risk of making dangerous decisions about what to do with the funds you suddenly have access to. There could be tax implications, and you could even run out of money too early and have to fall back on family members or the state to cover your cost of living.

So why is it so important that you take advice at retirement?

Four reasons you should take financial advice at retirement

Taking financial advice at any stage in your life can help you to achieve your financial goals. Worryingly, however, the Financial Conduct Authority found that 91% of UK adults did not receive any financial advice in their 12-month study period.

As your pension is a huge asset, it’s perhaps even more important that you seek advice regarding your options when you come to draw your pension, for these four reasons.

1. You’re likely to make more money

Seeking financial advice can help you retire with more money, and to achieve your desired standard of living post-work.

Research by the International Longevity Centre published in This Is Money found that people who sought advice between 2012 and 2014 ended up with more financial assets (£13,435) and higher pension wealth (£27,664) than individuals in similar circumstances who did not seek advice. 

And, speaking to an adviser can get you a better deal. The Money Advice Service say that eight out of ten people who stay with their existing provider for an Annuity lose out by not switching. Taking advice and switching to another provider could potentially give you a higher income.

2. You’ll end up with investments that are right for you

When you seek financial advice, your adviser has a duty to ensure their recommendations are suitable for you, including making sure that the investments are appropriate to the risk you are willing to take.  

This means you’re more likely to end up with products that are suitable for your unique needs.

3. You’ll avoid being scammed

In recent years, fraudsters have spotted a gap in the market for ‘pensions advice’ and are targeting people who access their savings without first seeking financial advice.

Look out for the following:

Be wary of anyone who contacts you directly. If you want to check that your adviser is properly authorised and regulated, use the Financial Conduct Authority search.

We’re regulated by the FCA and we’re authorised to provide retirement planning advice. Email or call (0161) 8080200 to find out how we can help you.

4. You won’t pay any unnecessary tax

One of the main implications of Pension Freedoms is that retirees taking a large lump sum could be subject to a significant tax bill.

At retirement, you are likely to want to withdraw a lump sum from your pension fund. However, how and when you take this can make a big difference to the amount of tax that you pay.

You can normally take a 25% of the fund tax free, however withdrawing your entire fund as a lump sum could see you face an Income Tax bill. Taking a large sum could push you into a higher tax bracket, so you could end up paying 40% or even 45% tax on the lump sum, immediately wiping out nearly half the value of your fund.

A financial adviser will be able to give you advice on the most tax-efficient ways for you to draw your pension income.

Looking for advice on what to do with your pension? We can help. Email or call (0161) 8080200 to find out more.

Please note:

A pension is a long-term investment and not normally accessible until you are 55 years of age. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

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