4 important reasons to speak to a financial planner before accessing your pension pot

With an ageing population in the UK, findings by Unbiased may not come as a shock: it revealed that the online directory for financial advisers saw a 91% increase in the number of people looking for an adviser about taking a flexible income from their pension since the Covid lockdowns.

Furthermore, it predicts that demand could accelerate from here. If you’re considering taking flexible pension withdrawals – otherwise known as “drawdown” – it’s important to speak to a financial planner first.

A planner can consider the different options available to you, and provide peace of mind that you can enjoy the retirement lifestyle you want while remaining financially secure. So, with this in mind, let’s consider four important ways a planner can help ensure that you take drawdown in a way that ensures you get the most from your pension pot.

1. A planner can help ensure you don’t deplete your pension pot

When Pension Freedoms legislation came into force in 2015, it broadly allowed retirees to decide how much money they could take from their retirement fund at any given time. While this may sound like good news, the increased freedom also brought increased risk, something highlighted by an FTAdviser article.

It reveals that Britons tend to overestimate the amount of pension income they can take in retirement by 30%. Furthermore, 61% of people do not know what their income was likely to be.

Without a financial planner to guide you, you may inadvertently take a level of income from your pension pot that is too high, which could exhaust it earlier than expected. As a result, you may have to significantly reduce your standard of living later on in retirement.

One way you may be able to secure an income for the whole of your retirement is to consider annuities, which surged in popularity in 2022 when the income they potentially offered rose significantly. While this may make annuities attractive, care should be taken if you’re considering one as they may not suit your retirement plans, can have expensive charges and are usually very inflexible.

A financial planner will be able to confirm whether an annuity, flexible drawdown or a mixture of both might be best for you.

2. You may have other assets that could boost your retirement income

While pensions are typically used to provide an income in retirement, you may also have other assets that could be used to boost your lifestyle. These assets could include investments, buy-to-let property, savings or even the equity in your home.

A financial planner can help you understand whether using them is appropriate for you, and how best to do so. For example, while equity release may sound like a good idea, care should always be taken.

Some equity release providers allow you to make monthly repayments to repay the interest, whereas others might allow you to “roll-up” the interest. This means it is paid later when you die or go in to a home, which has the potential to significantly reduce the amount of money you can pass on to loved ones.

3. A planner could ensure that your retirement income is tax-efficient

If you have a defined contribution (DB) pension, otherwise known as a “money purchase” scheme, you can typically access it at the age of 55 (rising to 57 from 2028). When you do, you can usually take up to 25% of your pension pot as a tax-free lump sum, with the remaining 75% subject to Income Tax at your marginal rate.

HM Revenue & Customs calculates your Income Tax by adding the income you take from the taxable element of your pension to any other earnings. If you don’t manage your withdrawals carefully, you may be pushed up into the higher- or additional-rate tax band, which is typically charged at 40% or 45% respectively.

When you consider that the higher-rate Income Tax threshold has been frozen at £50,270 until April 2028, the risk of being pushed up into the higher tax band might be greater than you think.

4. Your pension may not be exposed to the right levels of risk

As pensions are typically investments, their potential for growth is often provided by higher-risk assets that are held within them, such as stocks and shares. That said, these higher-risk assets are also more likely to suffer losses when the stock market takes a downturn.

With this in mind, pension providers often aim to reduce your pension’s exposure to higher-risk assets and reduce the level of risk your pension is exposed to as you approach retirement. This is “lifestyling”, which, while logical, could significantly reduce your pension’s growth potential.

As a result, your pension pot may not keep up with inflation, which measures the rising cost of living, and this could jeopardise your retirement lifestyle. Worse still, it may result in your retirement fund running dry sooner than expected.

Maintaining a higher exposure to risk might be something you want to consider, as it could ensure that your pension pot continues to work as hard as possible. A financial planner can confirm the right level of risk for your pension pot, so that it has the potential to grow and maintain your standard of living, while being exposed to a level of risk you’re comfortable with.

Get in touch

If you are considering accessing your pension or taking drawdown and would like to discuss how best to do it, please contact us on or call 01904 655 330. As an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.

Please note

This blog is for general information only and does not constitute advice. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

Get in touch

By talking about your current situation and listening to your aims, we create a personalised plan that will put you on a path to achieving your aspirations.

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