Your top five pension questions answered by Pension Wise


The Government’s free Pension Wise service was set up to help older people plan their retirement finances following the pension freedom reforms in 2015.

It previously explained how sessions work and how to prepare in advance to get the maximum benefit from an appointment here. 

The pension freedom shake-up gave over-55s full access to and control over their pension pots to spend, save or invest them as they wish in old age.

Here, Pension Wise explains the big questions these options throw up for savers and how it will help to answer them for each individual.

Pension freedom: Reforms gave over-55s full access to and control over their pension pots

Pension freedom: Reforms gave over-55s full access to and control over their pension pots

Pension freedom: Reforms gave over-55s full access to and control over their pension pots

What happens at a Pension Wise appointment?

Although its guidance specialists won’t tell you what to do with your money, Pension Wise will help you understand what your options are.

You will get a 45-minute appointment either over the phone or face-to-face. Hundreds of places are used for appointments across the UK, so a meeting is likely to be local.

People can bring a spouse, partner, relative or friend along, but help will only be given to the one with the appointment.

Guy Opperman, Minister for Pensions and Financial Inclusion, said: ‘If you are approaching retirement and would like guidance on your options then contact Pension Wise. They can help.

‘It’s like going to your GP for a check-up, you may have put if off but it needs to be done. Pension Wise will let you know your options and answer questions that you may have on your pension.’

To book a free appointment, or call 0800 138 3944. Read more here about how Pension Wise works. 

Five questions Pension Wise can answer

1) What kind of pension do I have?

There are two main types of pension – defined benefit and a defined contribution. If you are planning to retire it is important to know which type of pension you have.

You can work this out on the Pension Wise website using this simple tool – it only takes a minute.

How do defined contribution and defined benefit pensions work?

Defined contribution pensions take contributions from both employer and employee and invest them to provide a pot of money at retirement.

More generous gold-plated defined benefit – or final salary – pensions provide a guaranteed income after retirement until you die.

Pension freedoms launched in 2015 allow over-55s greater control over their pots, but only apply to people in DC schemes.

Those with DB pensions can transfer their savings to DC schemes, provided they get financial advice if their pot is worth £30,000-plus. Read more here about DB transfers. This is Money 

2) What does my pension statement say?

You would normally get a pension statement once a year. Your provider may call this your annual or yearly statement. This statement will show you:

* How much is in your pot

* An estimate of how much you might get when you start taking your money

* If your pension has any special features, for example a guaranteed annuity rate

* Your ‘selected retirement age’, the age you agreed with your provider

* The ‘transfer value’ of your pot or the amount you would get if you moved provider or cashed in your whole pot

For more information on your pension statement go here. 

What tax must you pay on pension withdrawals?

Read more about the potential tax penalties of cashing in chunks or your whole pot here, and the admin that can be involved here. 

3) What can I do with my pension pot?

There are six ways you can take your defined contribution pension pot and you can usually take a quarter of your pot tax free.

The options are:

* Leave your whole pot untouched and let it grow

* Turn it into a guaranteed income for the rest of your life by buying an annuity

* Invest it in a drawdown plan that allows you to take an adjustable, or flexible, income

* Take out cash in chunks

* Withdraw your whole pot in one go (see the box above for the tax implications of making cash withdrawals)

* Use a mixture of the options above.  

4) How can I transfer my pension?

If you want to transfer your pension, you can either combine the pension pots you have or transfer the value of your pension to a different provider.

Pension Wise can give guidance on transferring a pension. In some circumstances there is a legal requirement to pay a financial adviser for help before a transfer can go ahead.

When do you HAVE to pay for financial advice about a pension?

Savers with valuable guarantees attached to their defined contribution pension – such as a guaranteed annuity rate which pays more than you would currently get from an annuity bought on the open market – are required by the Government to take financial advice before they can transfer or take cash, if these safeguarded benefits are worth £30,000 or more.

Those with a generous gold-plated final salary or defined benefit pension – which provide a guaranteed income from retirement until you die – must take financial advice before transferring them to a defined contribution scheme if their pot is worth £30,000-plus. This is Money

5) How do I avoid a pension scam?

A pension scam is when someone tries to con you out of your money. This will often start by someone contacting you unexpectedly about an investment or other business opportunity that you’ve not spoken to them about before, about taking your pension funds before you’re 55, or the ways that you can invest your savings.

Taking a pension before you are 55 

Taking your pension before the age of 55 involves big tax penalties, on top of the risk of losing your pot to a scammer. Read more here. 

If someone contacts you unexpectedly and says they can help you access your pot before the age of 55 it’s likely to be a scam. Pension Wise can tell you what to look out for. Go here to find out their tips.

If you think you’ve been the victim of a scam, contact Action Fraud straight away. You can make a report online here or call 0300 123 2040. 

Check out This is Money’s Beat the Scammers page here.




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