Finally, he is commonly asked: “Can I withdraw all my pension?
“For some clients, this can be a good idea but for most the tax consequences make this unwise.”
One of the industry’s biggest concerns as the scale of the changes to pensions became clear, was that people would choose to withdraw their entire pot and spend it on flashy cars, leaving very little to live off should they continue to live for another 20 years.
Clearly, this is less likely to be an issue where financial advice is sought.
But advisers commonly field questions about the accessibility of the money people have been saving for years and now want to reap the rewards of.
Fiona Tait, technical director at Intelligent Pensions, acknowledges: “The most frequent question faced by both advisers and providers is ‘when can I have my money?’. However, the answers may be different from each source."
She explains: “A provider or guidance firm will base their reply on their rules and legislation as to whether a client can access their benefits, and an adviser is more likely to base their reply on whether a client should access them.
“As a result, there can be frustrations where clients believe that the freedoms mean they access their money at any time, much in the same way as they do from their bank account.”
Creating unrealistic expectations
In this way, frequently asked questions have highlighted some of the problems the pension reforms have brought with them and the importance of seeking advice from a professional, rather than taking a ‘do it yourself’ approach.
“The safeguards which have quite rightly been put in place can therefore appear restrictive to people who have already spent the money in their minds and may have unrealistic expectations of how quickly they can do so in practice,” Ms Tait points out.
“This can, unfortunately, be exacerbated by approaches from scam firms which may promise immediate access at any age.
“Advised clients are more likely to have an ongoing financial plan which manages their expectations and which includes a conversation about not just when they can take their money, but how fast and for how long.”
Tax is a mystifying area of financial planning and the complexity surrounding tax when it comes to retirement is proving a challenge for many clients.
“The taxation of pension payments is the cause of many questions, as well as a great deal of confusion and frustration,” confirms Gareth James, head of technical resources at AJ Bell.
