• The Pensions Advisory
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Call: 0800 011 3797

Call: 0800 011 3797


Pension Wise

Pension Wise is a free and impartial government service about the different ways you can take money from your pension

You can book an appointment – a 45-minute conversation between you and a Pension Wise guidance specialist. You’ll get personal guidance on:

  • your pension options
  • tax
  • which options might be suitable for you
  • what you can do next

Appointments are over the phone or face to face. At the end you get a summary of the pension options and next steps you need to take. To book an appointment you should be 50 years old or over and have a defined contribution pension.

Pension Wise guidance specialists are impartial – they don’t recommend any products or companies and won’t tell you how to invest your money.

For more information visit the Pension Wise website or phone 0800 138 3944 (or +44 20 3733 3495 if you’re outside the UK) to book an appointment.

Frequently asked...

My provider doesn’t offer the option I want. Don’t they have to?

The pension reforms allow providers to offer new options. If your provider does not offer the option you want, you should be able to transfer your defined contribution pension to another provider at any age up to retirement. 

You may incur some costs for transferring, and individuals who have pensions with special valuable features may have to seek regulated financial advice first.

Your provider may develop and introduce the options that you want in the future.

Will claiming my pension affect my State Benefits or my State Pension?

Your State Pension is based on your National Insurance contribution history, and is separate from any private pensions you have. 

Any money in or taken from your pension pot may affect your entitlement to some benefits.

It is your responsibility to tell the Department for Work and Pensions or your local council if you or your partner take any money from your pension pot.

What are safeguarded benefits, and why do I need to get advice about them?

Safeguarded benefits are special valuable features attached to a pension which guarantees its holder benefits which may be better than what they could receive on the open market. Examples of safeguarded benefits include guaranteed annuity rates.

If the value of your safeguarded benefit pension is over £30,000, the government requires that you to seek regulated financial advice before converting or transferring your pension. This is to ensure that you understand these special valuable features and therefore can make an informed decision on how to proceed.

Is using a regulated financial adviser good value for money and is advice necessary?

Whether or not you use a regulated financial adviser is generally optional. Advisers charge for their services and the cost will vary from firm to firm and may be dependent on your circumstances.  

It is important to shop around to find an appropriate adviser and to find out their costs. To help you find an appropriate adviser, the Financial Conduct Authority (FCA) has a list of regulated financial advisers and the Money Advice Service (MAS) has a retirement advisor directory which allows you to search for an adviser that meets your needs.

The government requires people to take regulated financial advice if they are giving up a safeguarded benefit of more than £30,000.  

What is a guaranteed annuity rate and what are the options you can attach to an annuity?

Some pension policies have a special arrangement known as a guaranteed annuity rate (GAR).  It is likely to provide you with a better deal than would currently be available in the annuity market if you were to buy one today, and is therefore a valuable benefit. You should check whether the terms of your GAR are suitable for your circumstances, and if your fund value is over £30,000 you will need to take regulated financial advice before your provider will allow you to convert or transfer your pension. 

What different types of annuity are there?

There are lots of different types of annuities, and you should be aware of your options when shopping around. Annuity options, which have to be agreed when you purchase the product, can include:

  • Single - only you receive an income either for life or for a fixed number of years
  • Joint - payments continue to your spouse/partner after you die
  • Guaranteed period - you fix the number of years where payments to your spouse/partner continue after you die (sometimes this can be a lump sum); the guaranteed period starts the day you take money from your pot, e.g. if you took out a guaranteed 10 year annuity and died after 8 years, your spouse/partner would receive payments for the additional 2 years
  • Escalating - increases every year, helping to reduce the effect of inflation
  • Enhanced - if you are projected to have a reduced life expectancy, then you may be able to receive a higher annual income from your annuity

The paperwork I have received from my pension provider is confusing. Could you please explain my options?

You now have the freedom to access your pension savings flexibly. There are several different options which may be available to you with your pension pot.  These are:

Leave your whole pot untouched – you don’t have to start taking money from your pension pot when you reach your selected retirement age. You can leave your money invested in your pot until you need it.

  • Get a guaranteed income (annuity) - you can use your pot to buy an insurance policy that guarantees you an income for the rest of your life, no matter how long you live.
  • Get an adjustable income - your pot is invested to give you a regular income. You decide how much to take out and when, and how long you want it to last.
  • Take cash in chunks – you can take smaller sums of money from your pot until you run out.
  • Take your whole pot in one go - you can cash in your entire pot. One quarter is tax-free, the rest is taxable.
  • Mix your options – you can mix different options. Usually you would need a bigger pot to do this. 

Pension Wise appointments are designed to go through these options. You should check with your provider to see which options they currently offer and what the fees or charges might be.  Not every provider may offer the option you’re looking for, and so you may have to transfer your pension in order to access this product.

What is the difference between a DB and a DC pension?

A defined benefit (DB) pension (also known as final salary or career average) is a type of workplace pension. It gives you an income based on your salary, length of service, and a calculation made under the rules of your pension scheme. With this type of pension, your employer guarantees a certain amount each year when you retire.

A defined contribution (DC) scheme is a personal or workplace pension based on how much money has been paid into your pot. They are sometimes referred to as ‘money purchase’ schemes. When you take money from a defined contribution pension it comes from the money you (and sometimes your employer) saved into it over the years, plus any investment returns your money may have earned. With defined contribution pensions, you can decide how you take your money out. 

If I cash in my pension pot how much tax will I pay?

When cashing in a pension pot you will usually get 25% tax free.  The remaining 75% is taxable and it will be added to any other taxable income you have in the tax year. Adding a large cash sum to your income could mean that you move into a higher tax rate. It could also affect your entitlement to any benefits.

It is therefore important that you understand what your income in a particular may be. Remember that sources of income include:

  • The State Pension
  • Payments from private pensions (not including any tax-free cash lump sums you may have received)
  • Earnings from employment or self-employment
  • Taxable State benefits
  • Other income, such as money from investments, property or savings

Pension providers will often have to deduct emergency tax when pension payments are made, which may result in an over or underpayment of tax. Your provider should give you information on how to claim back any overpaid tax. 

Do I have to take all my pensions at the same time or can I just take the 25% tax free lump sum?

If you have more than one pension pot you can choose to take each pot at different times, rather than taking them all at once.  For example, you may not need to access all of your money now or your pensions may have different selected retirement ages. 

When taking money from a pension pot you can usually take up to 25% of it as a tax-free lump sum.

If you do this, you must make a decision on the remaining 75% within 6 months; you can’t then leave it untouched. However, most providers will likely want you to make a decision before you have taken the 25% tax free cash. 

What are the charges for income drawdown and how does it work?

Drawdown is a way of receiving a regular or irregular income without buying an annuity.  You can still take up to 25% of your pot tax free cash sum, and the remaining part of your pot is then invested to give you a regular income in retirement, which is taxable.  You’ll probably need to be involved in choosing and managing your investments.

The provider you go with will offer you different investment funds with different risks. You pick the funds that are right for you and get a retirement income from your investments. You should think about how much you want to take out every year (your annual income) and how long you want your money to last (i.e. taking out a higher annual income means that your pension pot will not last as long).

Alternatively, a financial adviser can help create a plan with you for how to invest your money. They can advise you on how much you can take out to make the fund last as long as possible. Advisers will charge a fee for their services.

Your provider is likely to charge you for running your funds and whenever you get a payment.

Where can I find out more?

If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.

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