/ Money

How proactive must we be to manage our pension pots?

Golden eggs

It’s been a momentous couple of months for pensions. The goal posts been moved, the sport has changed and the shape of the ball has been switched. Are we ready to be more ‘hands on’ with our pensions?

The radical changes announced by George Osborne in the Budget will give pensioners much more freedom when they come to retire, with people now allowed to take their whole pension pot as cash, subject to taxation.

It’s likely that income drawdown will be the choice of many, with people gradually taking out retirement income each year, leaving the rest invested.The Government is guaranteeing some guidance to help you decide, but you may also want to take independent financial advice to help you make these complex decisions.

The hope is that with this greater flexibility at the end point, savers will become more engaged with their pension as it builds up and put more money in during their working life.

Taking control of your pension

Products such as self-invested pension plans (SIPPs) are set to become more popular as people seek to take more control of their pensions in an effort to produce a bigger final ‘pot’. Greater flexibility obviously demands greater responsibility to the individual.

Then there’s the fact that most of us will build up a number of different pension pots, often a mix of defined benefit and defined contribution schemes, as we move from job to job. Should we consolidate these various pots or might it be worthwhile to keep them separate?

Which? members have recently told us that 72% of them are in favour of people being able to do what they like with their pension savings, but 76% of those not yet retired indicated that they will need advice about what to do with their pension.

Are you ready to be proactive?

The phrase ‘the tyranny of choice’ might apply here – does the fact that people will have more options and greater personal responsibility for managing their retirement income potentially cause more problems than it solves?

The Government’s pension reforms could help people boost their retirement income by thousands of pounds. But with many unsure about how to get the most from their pension, and not trusting guidance from providers, it’s crucial that everyone involved – the Government, advice agencies, the industry and the regulator – put in place a consumer-friendly system that supports people to make the right decisions.

So do you feel that that you’re ready for the brave new world of self-investing of pensions, scheme consolidation and drawing down the right amount of money each year. Or are you concerned you’ll become unstuck without the right advice?


I’d love to manage to own pension pot(s). Just had a statement from one provider, the annual charge is more than 3 months payments.

I’m already hoping I can withdraw 25% in the 1st year followed by £10k (almost all the tax free allowance) a year from one pot for the next 20 years to avoid paying any taxes at all on it. Although I bet they won’t allow that.

I just hope interests rate go up alot and soon.

So its good for me, although I can see that for many whom for one reason or another struggle to live month 2 month it will probably be a very bad thing.

William, no State Pension? That will create a tax bill.

I’ve still got a few years till I can get my pension, thanks Mr Brown for that, so I’m hoping that the state pension + £10k will be less than the personal allowance then. Otherwise I’ll have to drop the £10k so say £9k and hope 20 years of fees on the bulk of the pension pot won’t wipe out any savings made. I just hope £10k a year is enough to life on.

PWDM says:
13 June 2014

By regular saving from an early age into tax free wrappers, and by the the power of compounding it is relatively easier to become comfortably off in retirement. However pension planning usually starts in late middle age by which time is far too late to build up an appropriate pension pot for a comfortable retirement.
Without sufficient early numeracy education and early life financial education many will end up having to rely on only the state pension. As the population of pensioners increases the country will become less and less able to afford the triple lock on the State Pension. Those who do not make adequate personal pension provisions, in addition to auto-enrolement provisions, can expect to have a poor life as pensioners.

I’ve paid into pensions since 1987 and am now 49 so should start to plan things but I just find ask the funds information and the need for ME to make decisions quite bamboozling. I so wish pensions were so much easier to manage. I’m wary going to get financial advice because I don’t know how much I’d need to pay and find someone i can trust. I don’t need any products so no adviser will make money from me via commission.

Planner says:
14 June 2014

I think you are in the same position that I have found myself in: a reasonable pension pot in a Stakeholder Plan but unsure what to do with the funds. I have been reluctantant to take financial advice because of the cost and unsure that I would get value for money. So my advice is not to rush into anything and give yourself time to research what do do with your funds – it can be easier than you think. Hargreaves Lansdown is a company I have found that gives good information to people who feel they are able to make their own financial decisions – I say this without bias because I am not currently invested with them and have still not decided where to put my funds. As I have read in the pages of an HL publication – the best person to make decisions about your finances is you!

I was averse to buying an annuity – all your money gone in exchange for a small income, gambling on how long you will live, and no opportunity to reverse your decision as you are buying an insurance.
I had what I regarded as a good financial adviser who set up a SIPP. The charges are reasonable, they manage the investments for me, pay the income and PAYE. No complaints so far, but expertise needs paying for. Would I manage my investments as well as they do, and escape fees? I very much doubt it. SIPPs now seem more attractive as the punitive tax on cessation seems to have gone, and you retain control over your pot.

Planner says:
16 June 2014

I agree that SIPP’s are a good option particularly if you have existing pension income from say a final salary scheme plus a State Pension. Otherwise an annuity would give the peace of mind of a known income for life – the downside of course is that annuity rates are currently low and unlikely to improve. I do intend to move my Stakeholder funds into a SIPP; there are a number of providers (see Which Money July 2012 for a review of SIPP’s) however my view is that I could manage my investments in a SIPP myself without having the overhead of a financial advisor’s charges on top of charges for holding investments in a SIPP. I still maintain that there is a wealth of free information available to help with creating an investment portfolio and I don’t believe that a financial advisor’s crystal ball is any better than mine!

It isn’t a question of coming unstuck without the right advice. The financial services industry, including its advisors and the relevant government agencies have failed the consumer over many important issues over many years. Does anyone remember pensions mis-selling, with profits policies,extended warranties, payment protection insurance and free standing AVC’s. However financially literate you are you will still get caught occasionally by the sharks but the individuals level of financial literacy is still the best protection against getting caught and the best way of achieving this is through education.

I’m just looking into my stakeholder pension options and looks a nightmare ,one gets 25% tax free and that’s it, we save all our life and our (silent) patner called government will always take a share of our money but we have a chance: guess how long we are going to live!!

The likelihood is that you did not pay tax on the contributions you made to your pension scheme so when you draw it as income it is taxable [subject to allowances]. The rate of tax payable now might be lower than you might have had to pay when you paid into your scheme if your contributions had been taken from your taxed income.