Pension Advisory Service

The Pensions Advisory Service (TPAS) no longer exists as a separate organisation: its free pensions help is now provided through MoneyHelper, run by the government-backed Money and Pensions Service. MoneyHelper gives free, impartial guidance, but not personal recommendations. If you want a recommendation about what to do with your own pension, you need a regulated financial adviser, and for a defined benefit transfer worth over £30,000 that advice is a legal requirement.

Pensions can be complex, and most of us only deal with them a handful of times in our lives. This guide explains the difference between free guidance and regulated advice, what a pensions adviser can help with, the main options at retirement and the tax rules to be aware of.

Guidance or advice: what is the difference?

People often use "guidance" and "advice" as if they mean the same thing. In financial services they do not.

• Guidance explains your options, the rules and the questions to think about. It is general, and it does not tell you what to do. MoneyHelper and Pension Wise provide free guidance.
• Regulated advice is a personal recommendation based on a full assessment of your circumstances, given by a firm authorised by the Financial Conduct Authority (FCA). The adviser is responsible for the suitability of what they recommend, and you have the protection of the Financial Ombudsman Service if things go wrong.

Both have their place. Guidance is a sensible first step for most people, and it is free. Advice costs money, but it is tailored to you.

Why might I need a pensions adviser?

A regulated adviser can look at your pensions, whether you have one or several, and recommend what to do based on your circumstances. They can help with retirement income planning, investments, tax and, if they hold the right permissions, pension transfers.

If your pension has safeguarded benefits, such as a guaranteed income from a defined benefit (final salary) scheme, and the transfer value is over £30,000, the law requires you to take regulated advice before transferring. That advice must come from an FCA-authorised firm with the permission to advise on pension transfers and opt-outs. Not every adviser holds it.

An adviser can also help you understand the tax implications of different ways of taking income, so you do not pay more tax than you need to. Many people also find regular reviews useful, to check their plans stay on track as rules, markets and their own lives change.

How much does pension advice cost?

Regulated advice is paid for, and the cost depends on how complex your situation is and what kind of advice you need. Some advice is a one-off piece of work. Some people choose an ongoing service.

• Firms must tell you their charges up front, before you commit, and explain how and when you will pay.
• Fees can sometimes be paid from the pension itself, but this reduces your pension, so ask how it works and whether it suits you.
• For DB transfer advice, firms have been banned since 1 October 2020 from contingent charging, which means charging more if you transfer than if you do not. There are limited carve-outs for people in serious ill health or serious financial hardship.

When choosing an adviser, look for someone with experience of the type of pension you have and a clear explanation of what you will get for the fee. It is worth comparing a few firms.

What are the benefits of using an adviser?

A good adviser will look at your whole situation, not just one pension. They should explain your options clearly, recommend what is suitable for you and tell you why, in writing.

An adviser can also review existing pensions and investments, and point out where charges may be high or where your investments no longer match your plans. For many people, the main benefit is confidence: knowing a qualified professional has checked their plans against their goals.

Advisers can be independent (able to recommend products from across the market) or restricted (limited to certain products or providers). They must tell you which they are. Neither is automatically better, but you should know which you are dealing with.

What types of pension can an adviser help with?

A regulated financial adviser can help with:

• Saving for retirement: how much to pay in, and how to make the most of tax relief
• Workplace and personal pensions: reviewing investments and charges
• Retirement income: annuities, fixed-term annuities, drawdown or a mix
• Tax-free cash: when and how to take it
• Estate planning: how pensions fit into your wider plans, especially with the inheritance tax changes due in 2027
• Defined benefit transfers: only if the firm holds the pension transfer permission

If you have a defined benefit pension, remember that the FCA's starting assumption is that a transfer is unlikely to be suitable for most people. A guaranteed income for life is valuable.

What are ongoing pension reviews?

An ongoing review is a regular check, often once a year, of how your pension is invested, what you are paying, and whether you are on track for the income you want. Leaving a pension untouched for years can mean investments drift away from what suits you, or charges are higher than they need to be.

If you pay for an ongoing service, you should get a clear explanation of what is included and how much it costs each year, and you should be able to stop it.

What options do I have while I'm working?

While you are still working, there are several things worth looking at.

Keeping track of old pensions

Many people have several pensions from different jobs. It is worth tracking them all down. The government's free Pension Tracing Service can help if you have lost touch with a scheme.

Some people choose to combine defined contribution pensions into one place to make them easier to manage. Before moving anything, check for valuable features you could lose, such as guaranteed annuity rates, protected tax-free cash or exit charges. My guide to how to consolidate pensions explains the general points. Defined benefit pensions need far more care, and moving one is a regulated transfer.

Checking you are on track

It is also worth comparing what your pensions are likely to provide with the income you expect to need. Some people only look closely a few years before retirement and find a shortfall. Getting a State Pension forecast and recent statements from each pension gives you a starting point.

What options do I have at retirement?

When you retire, there are several main ways to use a defined contribution pension:

• An annuity pays a guaranteed income, usually for life.
• Drawdown keeps your pension invested and lets you take money as and when you need it.
• A fixed-term annuity pays a guaranteed income or lump sum for a set period.
• Taking cash: you can take some or all of your pot as lump sums, with 25% of each usually tax-free.

Many people use a mix. MoneyHelper's free Pension Wise appointments explain these options if you are 50 or over and have a defined contribution pension.

If you have a defined benefit pension, things work differently: the scheme pays you a set income, usually with a tax-free lump sum option.

Annuities

An annuity turns some or all of your pension into a guaranteed income. Types include:

• Lifetime annuities: a guaranteed income for life, which can include inflation protection and a pension for a spouse or partner
• Enhanced annuities: a higher income if you have certain health conditions or lifestyle factors
• Purchased life annuities: bought with non-pension money, where part of each payment is treated as a return of capital and is tax-free

Some older pensions include a guaranteed annuity rate, which can be worth much more than current market rates. If you have one, read my GAR guide before doing anything.

Pension drawdown

With flexi-access drawdown, your pension stays invested and you take income when you choose. There is no limit on how much you can take each year, but the more you take, and the worse investments perform, the greater the risk of running out.

Drawdown can suit people with larger pots or other income who want flexibility. The charges and the investment risk need to be weighed carefully. Once you take taxable income from drawdown, the money purchase annual allowance (currently £10,000) limits how much you can pay into defined contribution pensions with tax relief.

Fixed-term annuities

A fixed-term annuity pays a guaranteed income for a set period, and may pay a lump sum at the end. The income is not affected by stock markets during the term.

The income depends on how much you invest, the rates on offer, the length of the term and your personal details. Terms are available over a range of years, and options can include single or joint lives, death benefits and inflation protection.

Taking cash

Some people take a tax-free lump sum to pay off a mortgage or help family, without yet taking income. Taking only the tax-free cash can be useful, but money taken out stops benefiting from tax-free growth inside the pension.

If you take your whole pot as cash, 25% is usually tax-free and the rest is taxed as income in that tax year, which can push you into a higher tax band. It is worth thinking about your future income needs first.

Tax and your pension

There are two main tax points to understand: tax relief on money going in, and tax on money coming out.

Tax relief on contributions

You can usually get tax relief on pension contributions up to the annual allowance, which is £60,000 for most people. It includes employer contributions. Higher earners may have a lower, tapered allowance, and the money purchase annual allowance applies once you have flexibly accessed a defined contribution pension. You may be able to carry forward unused allowance from the previous three years. Gov.uk explains the rules.

Tax on withdrawals

Apart from the tax-free portion, money you take from a pension is taxed as income, usually through PAYE. National Insurance is not charged on pension income. Your State Pension is also taxable, although it is paid without tax deducted.

The personal allowance is currently £12,570. Income above it is taxed at 20%, 40% and 45% in England, Wales and Northern Ireland, with different bands in Scotland. Spreading withdrawals across tax years can help keep you out of higher bands.

Tax-free cash is generally 25% of what you take, up to the Lump Sum Allowance of £268,275. This replaced the Lifetime Allowance, which was abolished from 6 April 2024.

From 6 April 2027, unused pension funds and most death benefits are due to come into the scope of inheritance tax, so pensions will need to be part of estate planning in a way they often were not before.

The Pensions Advisory Service: what happened to it?

The Pensions Advisory Service was an independent, government-funded body that for many years gave free information and guidance on pensions, including help with problems and complaints about pension schemes. Many people valued its helpline and its network of volunteer pension experts.

In 2019 TPAS became part of the Money and Pensions Service, alongside Pension Wise and the Money Advice Service. Their services now sit under the MoneyHelper brand, which offers:

• Free, impartial guidance on workplace, personal and State Pensions
• Pension Wise guidance appointments for people aged 50 and over with defined contribution pensions
• Help understanding your options at retirement
• A directory of retirement advisers if you decide you want regulated advice

If you have a complaint about a pension scheme that you cannot resolve with the scheme, the Pensions Ombudsman deals with many of these, and the Financial Ombudsman Service deals with complaints about financial advice.

Summary

Free guidance from MoneyHelper is a valuable starting point for anyone thinking about their pension, and it should be most people's first stop. Regulated advice goes further: it gives you a personal recommendation, with the protection that comes with it. For defined benefit transfers over £30,000, advice from a firm with the pension transfer permission is required by law.

Whatever you do, be wary of anyone who contacts you out of the blue about your pension, and check the FCA ScamSmart site before acting.

If you have a defined benefit pension and would like a free chat about how DB transfers and the advice process work, you can get in touch. The chat gives general information, not advice. If you then want regulated advice on a transfer value of £50,000 or more, I can introduce you to an FCA-authorised firm that holds the pension transfer permission. Arthur Browns may receive a fee from the firm we introduce you to if you become their client.

Frequently asked questions

What is the Pensions Advisory Service?

The Pensions Advisory Service was a free, government-funded pensions guidance body. It is now part of the Money and Pensions Service, and its help is provided through MoneyHelper. It gives guidance, not personal recommendations.

Do I need a pension adviser?

Not always. Free guidance from MoneyHelper is enough for many decisions. If you want a personal recommendation, you need a regulated adviser. If you have safeguarded benefits, such as a defined benefit pension, with a transfer value over £30,000, regulated advice from a firm with the pension transfer permission is legally required before you can transfer.

How much does pension advice cost?

It varies with the complexity of your situation and the type of advice. Firms must explain their charges before you commit. For DB transfer advice, contingent charging has been banned since 1 October 2020, apart from limited carve-outs.

What qualifications should a pension adviser have?

The firm should be authorised by the FCA, which you can check on the FCA Register. For defined benefit transfer advice, the firm needs the permission to advise on pension transfers and opt-outs, and the advice must involve an individual with an appropriate pension transfer qualification.

What can MoneyHelper help with?

MoneyHelper can explain your pension options, how tax works on pensions, how to trace lost pensions and how to find a regulated adviser. Its Pension Wise service offers free guidance appointments for people aged 50 and over with defined contribution pensions.