Do you need a financial adviser for your pension?

Most of us only get one shot at planning for our retirement, and it’s not simple or easy – which is why pension financial advice can be so crucial in getting it right.

Here we explore the reasons why it’s important to use a financial adviser both when planning your pension and choosing your pension options.

Do you need a financial adviser to start a pension?

If you’re an employee (i.e. not self-employed or unemployed) then you’ll be enrolled automatically in a workplace pension.

You won’t need pension advice for this, although if you’re a high earner it can still be usefully in choosing the right fund.

Also if you’ve got a public sector pension, such as an NHS pension, it’s also worth seeking advice from a professional to help you make the most of it and avoid certain pitfalls.

However, if you don’t have a workplace pension, you’ll probably need your own personal pension scheme unless you plan to rely on your partner’s pension in retirement (which is a risk, especially if the relationship breaks down).

The state pension alone is generally not enough income for most people to live on.

You can set up a personal pension scheme without advice.

However, there are good reasons to talk to a financial adviser about it as they can:

• Help you to understand and manage risk
• Help you to find and choose a diverse range of investments
• Offer guidance so you can avoid common and potentially expensive mistakes
• Explain your tax relief options and how to improve your tax efficiency
• Help you understand the costs associated with different investments

Do you need a financial adviser to manage your pension?

You can go DIY or turn to an expert for help with managing your pension.

If you choose the DIY route, you’ll probably be considering a stakeholder pension or a self-invested personal pension (SIPP), the latter of which is a pension where you get to choose the individual investments that go into it.

If you’re choosing your investments, you may need an adviser to pick the best funds to grow your pension faster and with greater security.

Good reasons to get expert financial advice for managing your pension include:

• Helping you to manage funds flexibly over the long term
• Running regular reviews of your investments and suggesting refinements
• Keeping you on track to meet your most important goals
• Peace of mind – with expert help, you’ll know you’re doing it right

Do you need a financial adviser to transfer a pension?

There are at least two ways you might ‘transfer a pension’, so it’s important to be clear first which one you mean.

Transferring a pension can mean:

• Trading in a defined benefit pension scheme
• Moving a defined contribution pension pot from one scheme to another (or combining several into one)

Trading in a defined benefit scheme

This kind of pension transfer involves exchanging a defined benefit (final salary) workplace pension for a pension pot of broadly equivalent value, i.e., a ‘defined contribution’ or money purchase pension.

Obtaining advice is almost always necessary for this process. If the pension you wish to transfer has a transfer value of £30,000 or more, then the law requires you to take financial advice first.

This isn’t just a box-ticking exercise – a financial adviser won’t simply sign a letter allowing you to transfer, and will charge you for comprehensive advice.

This may be relatively costly. The reason for this is that by advising you to transfer, the financial adviser takes on liability and risk if the decision turns out to be a poor one.

For example, the stock market might crash soon after your transfer, wiping out much of your pension pot. Or you might unwittingly draw out too much and deplete the pot too soon.

As a regulated adviser, the financial adviser is responsible for the advice they give, which is why they won’t simply approve your decision. Remember that this is a good thing and ultimately for your protection.

Moving a defined contribution penion pot / pension consolidation

You can move a pension pot from one scheme to another, such as when moving jobs and getting a new workplace pension, or when combining several pensions into one (pension consolidation).

In this case there are some key questions you should ask providers or your financial adviser.

• Will the new pension cost more or less in management than my current one?
• Should I transfer all my assets into a single pot?
• Are there any charges to transfer?
• Will I lose any guaranteed benefits?
• Will the new investments match my risk limits?
• Will I need regular advice in the future?

Do you need a financial adviser to cash in your pension pot?

Cashing in a pension, i.e. withdrawing the whole amount as a lump sum, is not generally recommended except when a pot is very small.

The whole pot will count as income for that year and be taxed accordingly. This could potentially push you into a higher tax band, resulting in you facing a tax rate of 40% or more.

Such a significant tax hit may negate the benefits of having a pension (e.g., tax-free saving), making it an unwise choice unless you are in a financial emergency.

If your defined contribution pension has a guaranteed annuity rate attached to it (which guarantees the amount of income you are entitled to when you retire), you are legally required to seek financial advice before cashing it in if it’s worth £30,000 or more.

In any case, seeking advice is highly recommended for the reasons mentioned above.

Similarly, you can’t ‘cash in’ a defined benefit pension without taking financial advice. In most cases, the guaranteed income of the pension will be preferable to a non-guaranteed finite lump sum.

Learn more: what is a guaranteed annuity rate?

Do you need a financial adviser to access regular pension income?

Although it’s not a legal requirement to consult a financial adviser when accessing your pension, this is probably the single most important time in your life to seek financial advice.

The decisions you make when you start to draw your pension may have implications for the next 20-30 years, and the sums of money at stake may run into hundreds of thousands of pounds.

Given the importance of the decisions you will be making, it is, therefore, prudent to seek expert advice at this point – just as you would use a solicitor when buying a home.

For example, if you are considering buying an annuity, you will need to think about the type you want.

Basic lifetime annuities fix your income from the start, while investment-linked versions are affected by the performance of underlying investments, causing your income to fluctuate..

Annuity rates are also influenced by your health and age. A financial adviser can help you find the right product and best rates, potentially saving you thousands of pounds over the course of your retirement.

If you want to take out a drawdown scheme, then financial advice is equally crucial.

Your adviser will help you choose the most suitable fund, set it up for you, and advise you on how much to withdraw from your pension pot without compromising it, ensuring your income is sustainable.

How else can a financial adviser help with a pension?

There’s so much choice and flexibility for accessing your pension today, but this freedom also brings more responsibility and added risk.

An IFA can help you make the most of your investments and keep them secure.

Through expert knowledge of legislation and regulations, they can also keep you up to date with changing pension rules.

Research published by Royal London shows that consulting an IFA will generally make you wealthier in retirement over the long term. In this sense, the net cost of advice is negative.

Get expert financial advice

Navigating the complexities of pension planning and management is crucial for securing a comfortable retirement.

Financial advisers offer invaluable expertise, helping you make informed decisions at every stage, from setting up your pension to drawing an income. Their guidance can enhance your financial security, and ensure you maximise your pension benefits and avoid costly mistakes.

Whether you are starting a pension, managing investments, considering a transfer, or deciding how to access your funds, expert advice can make a significant difference to your financial future.

To discover how a financial adviser could assist you with retirement planning, you can start by trying a pension review.

A qualified financial adviser will look at your pension arrangements and give you an independent assessment, so you can decide if you want to proceed. A consultation is free and without obligation.

Unbiased can match you with a financial adviser for expert financial advice and personalised guidance for all your pension planning needs.