What happens in a Pension Wise appointment?

Faith Archer

by , Personal Finance Journalist and Blogger

at Much More With Less

14 Dec 2021 /  

14
Dec 2021

Shocked lady staring at a laptop screen

Turning 50 is the chance to celebrate with presents, a party (Covid permitting) and a Pension Wise appointment.

Yup, grippingly, once you hit 50 you can get free guidance from Pension Wise about what on earth to do with your pension savings. Don’t knock it: Pension Wise can help stop you making pension mistakes that could last the rest of your life.

In fact the City watchdog, the Financial Conduct Authority, is so keen on Pension Wise that from June 2022 it wants pension companies to ‘nudge’ their customers more strongly into making appointments, before whipping out their pension cash.

But what actually happens during a Pension Wise appointment? And is it any help?

As a personal finance journalist, I was keen to find out, so I booked one and can report back.

What is Pension Wise anyway?

Pension Wise is the government service set up to help people understand their pension options. It can be used by anyone over 50 who has a defined contribution pension, as opposed to the lucky ones with final salary aka defined benefit pensions.

It’s free and impartial, because it doesn’t try to sell you anything. However, that also means it can only offer ‘guidance’ in general terms, rather than financial advice about the specific companies and funds to use, or how much to withdraw when.

What does Pension Wise offer?

In practice, you can book a 45 to 60 minute meeting with a pensions specialist, with no fear of being scammed or ripped off.

The official blurb promises:

  • Guidance on how to make the best use of your money
  • Information about tax when taking money from your pension
  • Tips on getting the best deal, including how to compare products, get financial advice and avoid scams

How do you book a Pension Wise appointment?

Right now, Pension Wise appointments are only available over the phone rather than in person (cheers coronavirus).

If you are over 50, you can book via the Money Helper website or by calling 0800 138 3944. There’s also web chat if you have questions.

I rather liked the phone option, rather than trekking miles to meet someone in person. The ‘trained guidance specialist’ I ended up speaking to was actually from Citizens Advice over in Worcester, the other side of the country from where I live in Suffolk.

I was pleasantly surprised to find a lot of availability when I booked midweek. Although there was nothing free the next week, there were plenty of slots between 8am and 3.50pm from the following week onwards.

I was glad to find something during school hours, but appreciate the lack of slots in the evenings or weekends could be awkward for people working full time.

Booking itself was easy - I just had to put in my name, phone number, date of birth and confirm I had a defined contribution pension. I had to add a memorable word for security checks, and answer a couple of marketing questions, but then it was all done and dusted.

How to prepare for a Pension Wise appointment

Like much in life, you’ll get more out of a Pension Wise appointment if you do some preparation beforehand.

The email I got confirming my appointment included details on how to prepare, asking me to check:

What type of pensions do you have?

Pension Wise only covers defined contribution pensions, which are more common nowadays than generous final salary/defined benefit pensions

What is the value of your pension pots?

Find this via pension statements or by logging into your pension accounts online. While you’re at it, I suggest checking where your money is invested (the fund names) and the charges – there may be separate charges for the funds you use and for the pension provider.

If you have lost track of any pensions, contact the pension provider or try the free government-backed Pension Tracing Service.

What is your State Pension forecast?

Find out how much of the basic State Pension you’re likely to get at State Pension age by calling 0800 731 0175 or visiting their website.

Does your pension pot contain any special features?

Worth checking, as some pensions have for example guaranteed annuity rates or a guaranteed pot value at a certain time. Ask your pension provider.

What are your financial circumstances in general and plans for retirement?

  • Jot down all your income, whether from salary, state benefits, savings and investments
  • Tot up debts and repayments
  • Think about when you want to stop working (realistically)
  • Do you want a fixed or flexible income in retirement?

What happened during the appointment?

My appointment was booked for 10.40am on a Tuesday. It started promptly, and ended up taking 40 minutes.

The first three minutes involved a security check confirming my memorable word, checking my date of birth to see I was over 50, and confirming I had a defined contribution pension.

The guidance specialist I spoke to, Andrew, explained briefly what would happen in the call, encouraged me to ask questions, and promised to email a summary afterwards.

He explained that Pension Wise doesn’t recommend products or providers, and that he would talk through what I could do, rather than what I should do. I also had the delight of listening to a recorded data protection statement and a plug for taking part in Ipsos Mori research afterwards.

Once the formal bit was out of the way, Andrew spent the next 10 minutes running through my own situation. He asked what I had saved in pensions and whether my pension pots had any special benefits. He established my personal circumstances – Married? Kids? Job? Income? Benefits? Debts? State Pension forecast?

I appreciated his explanations as we went along – asking about existing savings to discover if I would need to take a 25% tax-free lump sum from my pension pot, checking if I had a mortgage that would extend into retirement, enquiring about my health as people under 75 diagnosed with less than 12 months to live may be able to withdraw their whole pension pot tax-free. He finished with a quick recap, and my only surprise was that he didn’t ask about investments, as opposed to cash savings or pensions.

The next part of the appointment involved explaining six different options for my pension cash once I hit 55 (rising to the age of 57 from 2028). These are:

  • Retire later or delay taking your pension pot, leaving the money invested
  • Get a guaranteed retirement income (annuity), with the option of taking 25% of your pension pot tax-free
  • Get a flexible retirement income (pension drawdown), also with the option of taking 25% of your pension pot tax free
  • Take your pension as a number of lump sums, where 25% of each amount is tax free and the rest is taxable
  • Take your whole pension in one go, where 25% is tax-free and the rest taxable
  • Mix your options

Andrew did a good job of explaining the different options and running through investment risks and the impact of tax and pension charges.

He included some decent risk warnings: that pension investments can go up as well as down, but that money stashed in a building society account won’t grow, that you can’t change your mind after buying an annuity, and that if you withdraw more than your 25% tax-free it cuts the amount you can pay into pensions in future, down from max £40,000 a year to just the £4,000 Money Purchase Annual Allowance.

My interview also included practical tips: flagging that if wanted to use flexi-access drawdown, I might need to transfer to a different pension provider, but should check if I’d be hit by exit fees or lose any benefits attached to my existing pensions.

The big warning about pension scams came about half an hour in, emphasising the importance of checking you’re dealing with legitimate companies and not making rash decisions. Andrew pointed out that cold calls about pensions are illegal, and that anything that sounds too good to be true probably is.

He rammed home the risks of falling for a scam that involves withdrawing money from your pension pot earlier than 55. You may not only wave goodbye to those retirement savings, but may also get hit by a 55% tax penalty on the money withdrawn. Paying tax on money that’s been stolen from you really does add insult to injury.

The last few minutes included suggestions about where to go for more information, and the chance to ask questions.

Andrew explained that I could come back to Pension Wise, or contact the Pensions Advisory Service with specific queries. He flagged that Money Helper includes costs and comparisons for the biggest pension companies, but suggested paying for financial advice if I wanted recommendations for specific funds and pension providers.

I asked whether he could recommend any tools to model cashflow in retirement, given I have pensions kicking in at different times, but all he could suggest was playing around with the budget planner and budget calculator tools on Money Helper. He suggested withdrawing the 25% tax free cash, and using that to provide an income until other pensions started.

I also asked how he would recommend choosing between providers, and he suggested comparing charges, as ‘generally fees are the important part’, and reducing fees could help get the best returns.

It was quite comforting to be told that I was doing fine, well diversified with good charges. He finished off with the warning that “someone like you, with a fairly large pot, is very attractive to fraudsters”, and consoled himself that “at least now you have been warned and can look out for it”.

Afterwards, I was transferred to an exit poll, and emailed a summary of the topics discussed, including the main points and signposting me to sources of further information.

Is it worth having a Pension Wise appointment?

As someone who writes about money and pensions for a living, I was impressed with how much ground Pension Wise covered. The appointment didn’t just lay out options for pension cash, but also included important warnings about tax, scams and the Money Purchase Annual Allowance.

I was also impressed that the person I spoke to related some of the options to my own circumstances. I have a chunk of pension money and savings, with no mortgage or other debt, so he suggested that pension drawdown would definitely be suitable for me, and spent longer explaining that option, while warning that if I cashed in my entire pot I’d end up paying 45% income tax.

However, a Pension Wise appointment only provides ‘guidance’ on the options available. It doesn’t recommend specific pension providers or funds, nor spoon feed how much money to withdraw when. You still have to make those nitty gritty decisions yourself – or pay a financial adviser to help.

But even if Pension Wise only makes general points, I’d still whole heartedly recommend booking an appointment, even if it only forces you do the prep beforehand: totting up the value of your pension pots, checking your State Pension, and reviewing your financial situation now and in retirement.

Fundamentally, pension rules are complicated. It’s vital to review your options before whipping money out, as some decisions are irreversible. If you hand over your retirement savings to a scammer, you may never get them back. If you take out more than your 25% tax-free lump sum, you could then massively reduce the amount you can pay into pension in future. Take out too much, and you could not only run out of money in later life, but you might face a far higher tax bill than if you spread your repayments.

A free Pension Wise appointment can help avoid expensive mistakes, so I reckon it’s well worth doing.

Now – over to you. Have you had a Pension Wise appointment? Was it useful? If not, would you consider booking one after you reach 50?

Faith Archer is a Personal Finance Journalist and Money Blogger at Much More With Less. Check out Faith and Lynn’s videos about spending during lockdown and after lockdown.

Risk warning: As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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