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While it’s not mandatory to seek financial advice when starting or investing in a pension, it may still be a good idea to speak with an expert to manage risk and get a clearer understanding of tax efficiencies, ultimately giving you the best chance of hitting your retirement goals.

In this article, we’ll outline the various scenarios in which it may be wise to seek financial advice. Like most good things in life, investing for your retirement takes time, patience and know-how. Some people may feel comfortable taking on this responsibility alone, while others may want the reassurance of professional help, either regularly or at selected points in time. But, as we shall explore here, sometimes there are situations where it is compulsory to take professional advice on your pension.

The reasons investors seek financial advice for their pensions

Financial advice, in the first instance, can help you understand the role of state, personal, and workplace pensions in your individual financial plan, making the most of each pot.

You can seek financial advice either through an independent financial adviser, or through a wealth manager, such as Nutmeg, where we offer restricted financial planning and advice services to help people with their retirement planning. Here we talk through the main advantages in taking this route, and how they can come into play at various stages in your financial journey.

  • An adviser can help you to set investment strategies

If you want to reach certain financial goals at certain times, including with your pension, an adviser can help you to work out the most efficient way to do this and how much to put away each month. They can also help you review your strategy to keep you on track.

  • An adviser can help you to be tax efficient

Paying too much to the taxman could leave you short in your later years. Financial advice could help you maximise the tax incentives given to investors each year – including tax-relief on pensions. Advisers can help you to structure your spending in retirement, so you don’t pay too much of your pension to HMRC.

  • You could gain peace of mind

Investments can be volatile, of course. If you are the kind of person who finds it difficult to deal with seeing your money move up and down in value, a financial adviser can help reassure you about decisions and ensure your financial plans stay on target in difficult times.

  • An adviser can help consolidate your pension

If you have several pensions from former employers, an adviser could help you to consolidate them in one place and direct you on how to invest it. Pension consolidation can make for less admin, a greater control over your pot, and potentially better value if you can reduce your fees. You can read more in our guide to tracing, consolidating your pensions. However, before any transfer, it is best to check there aren’t any specific benefits with your pension, such as life cover, that you would lose if you transfer to a new scheme.

When is financial advice required?

There are some situations where you are required to seek pension advice, so that you understand the implications of what you are doing.

The requirements depend on whether you are dealing with a defined benefit (DB) pension – sometimes referred to as final-salary pensions – where the income you receive in retirement is guaranteed, or a defined contribution (DC) pension, where the amount you receive depends on how your investments perform. The latter is the more common option in today’s workplace pensions because it is less complex and less expensive for an employer to run.

  • Transferring your pension

If you are transferring a DB pension to a DC pension, then you must seek financial advice. With DC schemes, typically you do not need to take advice when transferring from one pension to another, unless there are protected minimum benefits.

If you are planning on transferring a pension worth more than £30,000 to another provider and it has any safeguarded benefits attached, the financial regulator requires you to seek advice.

There is no obligation below this level or if there are no safeguarded benefits (such as guaranteed annuity rates, protected tax free cash etc). The cost of this advice ranges on average from 1% to 2% of the total pension pot. An example of a flat fee might be £3,000 for at-retirement advice on a £250,000 pension pot.

In addition to these situations where advice is compulsory, there are other times where it might be advisable.

These include:

  • Withdrawing money from a pension

The rules around pensions that came into force in 2015 give you the option of buying an annuity with a pension pot or withdrawing money from it as needed. Financial advice can help you to decide how to do this in the most tax-efficient and useful way for you. You can also get free impartial guidance on this from the government by booking a Pension Wise appointment.

  • Buying an annuity with a portion of your pension

You can choose to buy an annuity, giving a guaranteed annual income, with some or all of your pension. You do not need to get financial advice to do this, but it may be helpful if you’re trying to decide whether to use all of your pension pot to do this or to take a hybrid approach. It will also be helpful if you want to ensure you get the best possible annuity rate.

How much does financial advice usually cost?

The cost of financial advice can vary and you may pay for it in different ways. Pension adviser fees may include:

  • A set hourly rate
  • A set fee for work completed
  • A fee based on the percentage of the value of the assets you hold

The most recent Cost of Advice survey from independent financial adviser group VouchedFor suggests that the average hourly rate is £196.

However, the cost of ongoing advice could turn out to be far more expensive than this. The same survey suggests that the cost of consolidating three £500,000 pension pots and receiving ongoing advice on them over five years would be £27,868 overall.

Nutmeg’s own restricted financial advice service costs a flat fee of £575, which includes an in-depth review of your current financial situation, retirement planning, tax planning, pension and investment advice, as well as a review of your existing investments with a cashflow forecast.

Should I DIY my pension or get professional advice?

Some people choose to run their pension for themselves, using a DIY investment platform to buy and sell funds or shares within it. This may be the cheapest way of running a pension, but you do not get any advice. DIY platform costs will vary for holding investments, and this does not include costs levied by the funds themselves. And remember, you have to make all decisions yourself with a DIY portfolio.

In comparison, a wealth manager may charge between 1% and 1.5% of all your assets to invest your money with fund charges on top. The manager will make all decisions for you with regards to investing.

Nutmeg’s offers competitive fees, as outlined on our website. There are underlying costs but no set-up, transaction, trading or exit fees. The portfolio will be invested by an expert in line with your risk tolerance.

How Nutmeg can help

Nutmeg’s award-winning pension, voted Boring Money’s Best Buy Pension 2023, can help you to manage your retirement planning in an easy and cost-efficient way.

You can also transfer existing pensions to Nutmeg and use our financial planning service to create a retirement plan that’s right for you. Book a free call to speak to the team to understand your options.

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Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. A pension may not be right for everyone and tax rules may change in the future. Please note that during any transfer, your investments will be out of the market. If you are unsure if a pension is right for you, please seek financial advice.