The new pension’s freedom rules effectively allow anyone over the age of 55 unrestricted access to their accumulated pension funds including the option to withdraw it all as a single lump sum. With this in mind some may question whether there is still a need for advice in the pension taking process.
Obviously I’m far from an impartial observer but I would argue that the new rules create an even greater need for advice. For example, from a tax perspective how and when you take your benefits can make the difference between paying no tax or 60% tax on a withdrawal. It can also mean money that would have passed to your nominated beneficiary’s tax free, suffers 40% inheritance tax.
Ultimately a personal pension is just a tax wrapper around investments and most people are still going to need an income for the duration of their retirement therefore advice to help ensure that the fund doesn’t run out and that they maximise their investment returns whilst minimising the risks will be very important to them.
As an alternative, the Government have promised that all those at retirement will be entitled to free ‘guidance’ on their options for taking their pension benefits.
To draw a parallel to medicine, I liken the pension guidance that is being offered to seeing a nurse or pharmacist and being told you should stop smoking because it’s bad for you. Their guidance may involve providing a list of nicotine replacement treatments and giving the advantages and disadvantages of each. Guidance works brilliantly for clear cut situations where arming you with the relevant information can enable you to make a decisions yourself. However, when it comes to something serious that is when advice is needed. Just as you would go to the doctor for something potentially life threatening, surely you should seek advice for something that is going to determine the money you have to live on for the rest of your life. Seeing a good adviser should be like seeing a good doctor it should involve a diagnosis, a prognosis and a discussion on and recommendation as to the best treatment options and then the implementation of those.