I have an old pension policy with a ‘guaranteed annuity rate’ attached, which I’m told is quite valuable. I want to transfer it to a new provider so I can access the money flexibly, but I’ve been told I can’t unless I speak to – and pay for – a financial adviser. How can this possibly be the case? It’s my money.

Anonymous

Tom Selby, AJ Bell Head of Retirement Policy, says:

Reforms first introduced in April 2015 gave people with DC (defined contribution) pensions freedom and choice over how they access their retirement pot.

From age 55, savers with these pensions can take an income to suit their needs through drawdown, access ad-hoc lump sums direct from their pot or use their fund to buy an annuity. You can also mix and match these options to suit your needs. The age at which you can first access your pension in this way is due to rise to 57 in 2028.

However, not all pensions can be accessed flexibly. If you have a DB (defined benefit) pension, your retirement income is paid by your employer based on the number of years you have been in the scheme and your earnings. Because a DB pension gives you a right to an income rather than a pot of money, it cannot be accessed directly in the same way as a DC pension.

If you have a funded DB pension (where the scheme in which you belong holds assets to pay income to members) you can request a ‘transfer value’ and have the option of moving this to a DC scheme. If your fund is worth £30,000 or more, you will need to take regulated financial advice before transferring. If you are a member of an ‘unfunded’ public sector pension scheme, you are not able to transfer out.

As you have found, it is not just DB pensions which come with an advice requirement for members wanting to transfer out.

Older-style pension plans sometimes come with a guaranteed annuity rate attached. This means your retirement income is guaranteed to be a certain percentage of the fund. You could often get considerably more income than buying an annuity on the open market. Because this percentage is guaranteed, the £30,000 advice requirement applies.

While I appreciate it might be frustrating to have to take regulated advice before moving your pension, the requirement is in place for a reason. Guaranteed annuity rates are often extremely valuable and, although there are circumstances where a transfer can be in someone’s best interests, giving up these guarantees is a decision that shouldn’t be taken lightly.

If you’re struggling to find an adviser, this Moneyhelper directory is a good place to start.

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?

Send an email to asktom@sharesmagazine.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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