The new pension reforms which allow individuals access to their hard earned pension funds are undoubtedly attractive to many.

According to this article in the Telegraph pension savers withdrew nearly 2 billion in money held in pension schemes in the first few months of pension savings with the first billion being withdrawn in the first couple of months of the new rules kicking in (April and May).

For some of those accessing their pensions withdrawing a decent amount of cash from their pension scheme might have been the right move. However recently I’ve been wondering how many people who withdrew a chunk of cash from their pensions made quite an expensive mistake…

The reason I’ve been wondering this recently is due to a recent experience I had…

In the early days of the pension reform coming into force (back in April 2015) we had a number of queries from clients looking to make use of the pension reforms.

Some of these potential clients we declined to work with purely because they wanted someone to effectively sign a form, complete the administration and facilitate their withdrawal without any form of advice….which is something as a business we won’t do (I wrote about this in more depth here)

However some of these clients whilst having genuine reasons for wanting access to their pension pots also wanted our advice to ensure they were following the right path.

One particular client, once we’d conducted a bunch of research on their behalf, decided under our guidance not to take any of their pension pot in cash.

There were two clear reasons.

Firstly, this particular client is a higher rate taxpayer and therefore withdrawing money from their scheme over and above what they are allowed to withdraw tax free meant a tax liability of tens of thousands of pounds.

and

Secondly their current pension arrangement had a guarantee in place.

A guarantee they didn’t know they had.

A guarantee which meant that if we assumed current levels of live expectancy was potentially worth over 2 times as much as just taking the cash (not including the money they’d have to pay in tax)

A guarantee which absolutely should be considered when working out whether it’s a wise move to take cash out of your current pension pots.

So this takes me back to wondering….

Wondering how many of the people who withdrew pension funds had a guarantee on their current pension schemes?

Wondering how many people, who had guarantees, actually knew they had a guarantee on their current pension schemes?

and

How much was lost in guarantees on pension schemes cashed in?

I couldn’t find definitive answers despite my wondering (and research). However I can try to help you if you’re close to making a decision about your pension in my own little way by sharing with you one little nugget of knowledge.

If you’re thinking about accessing your pension pot, before you do this, check with your existing provider whether you have any guarantees you’ll lose by either withdrawing the money or transferring to a different provider.

You might want to engage a financial planner to help you do this. You might not.

However taking an extra couple of seconds to ask the question about guarantees might change your perspective on the best course of action and potentially help you potentially benefit by tens of thousands of pounds in the longer term.

After all the more information you have, the better decisions you can potentially make….

….so make sure you and the professional you choose to work with (if you’ve decided to do this) have asked your about guarantees on your current schemes.

It could be a question worth tens of thousands!

If you would like to speak to us regarding your pension please email CassieDaems@cervellofp.co.uk or call us on 08450 568 959.