Wealth of Advice, Swale House, Mandale Business Park, Durham, DH1 1TH
Pensions can feel complex, and many people have questions about how to access them, what options exist, and how tax rules apply. Episode 3 of the Retire Well with Wealth of Advice podcast addresses common pension questions, giving clear guidance to help you make informed decisions.
Our hosts, Joe and Matthew, Chartered Financial Planners, explain the essentials of pensions, from tax-free cash and flexi-access drawdown to defined benefit schemes and pension consolidation. This blog is for educational purposes only and does not constitute financial advice. Always seek professional guidance before making decisions about your pension.
In most cases, if you are a UK taxpayer under PAYE (Pay As You Earn), you do not need to complete a separate tax return when taking money from your pension. Tax on your pension income is usually deducted automatically by your pension provider or employer.
However, there may situations where a Self-Assessment tax return may be required.
The minimum age to access pensions in the UK is currently 55, rising to 57 in April 2028. This applies to most occupational and personal pensions.
• Defined Benefit (DB) Pensions often have a scheme-specific normal retirement age. You may be able to access benefits earlier in cases such as redundancy or ill health.
• Defined Contribution (DC) Pensions offer more flexibility. You can choose to start taking income once you reach the minimum pension age, subject to scheme rules.
Understanding the normal retirement age for each of your pensions is essential to plan your income and tax efficiently.
One of the most common questions is about the 25% tax-free lump sum, sometimes referred to as the pension commencement lump sum.
• You can take up to 25% of your pension pot tax-free.
• The remaining 75% is taxed at your marginal rate of income tax.
• Flexi-access drawdown allows you to leave your pension invested while taking income as needed and control how much and when you take your 25% tax free. This provides additional tax efficiency and potential future investment growth.
For defined benefit pensions, tax-free cash is calculated based on your accrued benefits and scheme rules, rather than the pot value.
Yes, most DB pensions allow a lump sum as standard, often calculated as a multiple of your annual pension income (for example, three times the pension). The exact amount depends on your scheme rules.
Many will also allow you to forgo some of your annual scheme pension in exchange for a higher initial lump sum.
Transferring a DB pension to a DC scheme is possible but not always advisable.
• The transfer value is capped, and transferring usually involves giving up guaranteed income and benefits.
• This is a high-risk decision, particularly if the DB pension has valuable guarantees or early retirement options.
• Professional advice is essential, and often independent financial planners can model outcomes to show whether a transfer makes sense.
Pensions are generally individual arrangements. While contributions are personal, you can structure pensions to provide death benefits or survivor benefits for a spouse or partner.
• Most joint planning relates to ensuring a surviving spouse receives income or lump sum on your death.
• Contributions themselves are not “joint” in the way shared bank accounts are.
Understanding how death benefits work can ensure your partner is financially protected.
Pensions are a valuable asset in divorce settlements. They can be split using a pension sharing order, which allocates a portion of one spouse’s pension to the other.
• This applies to both DB and DC pensions.
• Early planning and professional advice can help ensure the division is fair and minimises tax implications.
Having multiple pensions can make retirement planning complex. Pension consolidation may help by:
• Simplifying administration and paperwork
• Reducing management and fund charges
• Allowing easier tracking of investment performance
Before consolidating, check for:
• Guaranteed benefits in existing pensions
• Exit fees or transfer penalties
• Differences in investment options and flexibility
Professional advice ensures consolidation improves efficiency without losing valuable benefits.
Understanding your pension options is essential to secure a comfortable retirement. To start:
• Check your pension pots and ensure you know the type and value of each.
• Consider flexi-access drawdown carefully to manage tax and maintain investment growth.
• Seek professional advice before transferring or consolidating pensions.
• Download our free guides and resources to help you plan your retirement.
At Wealth of Advice, our Chartered Financial Planners can review your pensions, assess tax implications, and help you create a retirement plan tailored to your goals. Take control of your pensions today to ensure a well-planned and secure future.
If you want a better view of what your future could be, we'll have a chat and work out if we make a good fit for you and your financial picture.
Wealth of Advice are authorised and regulated by the Financial Conduct Authority, reference number 563909. This website is for information purposes only and is not personal advice.
We are committed to providing products and service of the very highest standards. If you feel that we haven't lived up to your expectations in any way, however, we would like to know so we can put things right for you. If you have a complaint, make sure you contact us directly. Accordingly, we will do all we can to resolve your complaint by the end of the next business day. However, if we can't do this, we will write to you within five working days to tell you what we have done to resolve the problem, or acknowledge your complaint and let you know when you can expect a full response. Furthermore, if we haven't issued our response within eight weeks from the date you first raised your complaint, or if you're dissatisfied with our response, you can ask the Financial Ombudsman Service - www.financial-ombudsman.org.uk - for an independent review. The Financial Ombudsman Service will only consider your complaint once you've tried to resolve it with us, so please take up your concerns with us first and we'll do all we can to help.
Wealth of Advice Ltd is a company registered in England and Wales, company number 07709624.
VAT Number: GB131946515