What you need to know about your pension to prepare for retirement

James Rowe: Hello and welcome to this live episode of the Which? money podcast. My name is James Rowe and I am joined by an expert panel who will be answering all your questions on pensions and retirement. First of all, from Which?, it is our money helpline team manager, Joanne Padilla. Joanne, hello.

Joanne Padilla: Hi, good evening.

James Rowe: Nice to have you here. Next along the line we have the investments and financial planning director at Hub Financial Solutions, Steven Tait. Steven, hello.

Steven Tait: Great to be here. Hello.

James Rowe: Likewise. Nice to have you here. And finally, Philip Brown is the head of DC Master Trusts and lifetime savings at Pensions UK. Philip, hello.

Philip Brown: Good afternoon.

James Rowe: Nice to have you here as well. Now, as you will remember when you signed up to join us live today, you had an opportunity to pre-submit a question. And we have had loads. I am going to kick off with some of the pre-submitted questions then get to your live questions.

A big one was around how much money do you need in retirement? I will take Debbie Tonken’s for example. She asked: “How much annual income do you need as a single retired person to be able to manage?”

And then we had a more detailed question – I like this one – from Chaz, who wanted to know how much it would take to cover a more lavish lifestyle that covers three holidays a year and a new car every three years. Philip, this seems like a ready-made question for you, obviously the work you do at Pensions UK.

Philip Brown: I think I would like to add a little bit to the question because I think it is more about enough for what? And as the second part of that question asked, it is about the lifestyle that you are aspiring to have in retirement.

A good place to start is the retirement living standards. There is a website for those that actually shows you three different retirement scenarios, including those people who want to have a new car on a regular basis – people who want certain kinds of holidays. But most of all, what you have got to realise is that that website is there to help you start thinking about retirement and help you start framing questions.

So, from that, there are steps that follow on. You can get advice – or you can just get guidance – and it depends what you are trying to achieve in retirement. So, that website is probably a good starting point, but it is just a starting point for understanding the different standards of living you could get for different incomes.

James Rowe: It gives you three distinct different lifestyles, doesn't it?

Philip Brown: It does. And those are done on a single basis or on a joint basis. So, you can do it with a partner or you can do it just as an individual. And it is very important that you do remember that is about framing the costs of retirement.

You have then got to think about how much money you have got in a pension – how much you would need to save to get to those levels. But that is where guidance comes in. You can have a conversation with somebody like the Pension Wise service. You can come to Which? and speak to the helpline at Which? – and if you want something really tailored and bespoke to your individual circumstances, that is when you start going down the route of getting financial advice and having something that is designed and tailored to you as an individual.

Joanne Padilla: One of the things we do mention to members here at the money helpline is the fact that if you look at your core spending and really look at the bills that you have to pay, no matter what age you are at – food shopping obviously, your car insurance and so forth – maybe be a little bit more on the expensive side, because sometimes we under-budget ourselves. And then that way you know you have that as your basis as well, “I need at least X amount to cover those”. And then anything more than that will be for your holidays, your cars, etc. So, that is a good starting point as well for planning.

James Rowe: Another one for you, Joanne – because a lot of people pre-submitted their questions to do with different ways of accessing their pension once they come to retirement. Lots of people want to understand the difference between drawdown and annuities and the pros and cons of each. I will take William’s question, for example: “What is the best thing to do with my pension pot?” Simple as that. I don't know if we should start with the basics around this, what are the different options for accessing your pension?

Joanne Padilla: Your main choices are the drawdown or the annuity and it really depends on you as an individual what you are really comfortable with. In an ideal world, if you got a big enough pension pot, you could do a bit of both.

But with an annuity, if you are someone that is very cautious – not comfortable with seeing your money go up and down now that you are retired, you just want that peace of mind that I am going to get £15,000 a year or whatever amount it would be – then that is what an annuity provides you. And obviously, you can have the annuity that will pay you until you die. So, that would give you that peace of mind that I will always get that £15,000 a year.

Whereas with the drawdown, that just gives you the ultimate flexibility on how you want to spend your money. So, do you want to take money regularly or do you want to just make an ad hoc withdrawal like your savings account? You are totally down to how you manage it. But based on the fluctuations in the markets, then if you are reliant solely on that money for your main living and we do have whatever crisis may happen that may cause markets to fall, then you have that risk of running out of money and you are still living in your 80s or your 90s. So, that is probably the main drawback of that type of pension.

James Rowe: I am sure we will get into the nuts and bolts of how annuities and drawdown both work across the next hour or so. But you mentioned market fluctuations and this comes to a question that Nicola asked to do with the best time to access your pension as well.

“My husband was planning to retire in the next 18 months, but in light of the conflict in the Middle East and the potential effect on investments, is he better off retiring now?” I guess it is a difficult question because it is an individual basis, but that puts into perspective how modern-day events might have an impact.

Steven Tait: If I think about the approach to this, I would suggest that it is really about focusing in on what kind of retirement – what sort of lifestyle you want to have. And fundamentally, having a real clear focus on your goals and how you would look to utilise your pension to achieve those goals.

I think it is really important in times of volatility and with the geo-political environment to maintain a bit of a review first and then react second to it. So, you often see the market with short-term volatility tends to absorb the shock and then almost return back to fundamentals. And we have seen that in terms of some of the performance of the markets. You have seen some volatility based on what is coming out of America – some of the ceasefire etc. – volatility, but markets in the main have centred back to where they were – recovered their losses.

So, from my perspective, I think it is really key on locking in and really being focused on that plan. What do you want the your lifestyle to look like in retirement? Of course, with flexibility now you can do partial – there are opportunities around tax-free cash if you need to boost, assuming you are at pension age. So, with flexibility there is an opportunity really to tailor it to your circumstances. A lot to consider, but really clue in on the plan and review, don't initially react on it.

James Rowe: Steven, you did mention tax-free cash. I want to pick out a couple of questions on the tax-free lump sum because we had quite a few pre-submitted questions about this as well. Let’s take Karen Davies, for example, who asked: “Do you recommend withdrawing the 25% available to you when you reach 55?”

And Neil Courtman asks: “Am I able to take the lump sum in smaller sums, e.g. £10,000 a couple of times a year until the 25% limit has been reached?”

Steven Tait: Absolutely. So, again, it is clearly depending on circumstance and one of the key considerations is really around tax and your tax position in terms of the income that you then take off the back of that. But fundamentally, there is an opportunity really to phase it – again, the question is what do you need it for? What are you seeking to use the money for? Sometimes it is around clearing down debt or indeed just an initial boost of income. So, a fairly generic response there, but fundamentally the answer is absolutely you can tailor it to your own needs. But again, I would really encourage real clarity on what you are seeking to utilise the money for.

Philip Brown: I think it is worth saying it is not really a yes or no decision, should I take it now? What you need to think about is the long-term consequences of that decision. Because taking money out of the pension has an impact on the income you can draw from it, and there are tax-efficient ways of having that lump sum paid as income through the pension you have got that is delivering you that retirement income.

So, I think it is really important not to think about it as something I have to do at the point I turn 55. You have got to think about the longer-term consequence of doing that at that age – and that could have a lower income produced for you for the rest of your life by making a decision at that age just because it is available.

Joanne Padilla: That is okay. I was just going to add there is also the option where you can have the withdrawals where each withdrawal 25% is tax-free and 75% is taxable. So, that is another option that is available when you are looking at drawing down and accessing your pot as well.

James Rowe: I am going to dive into some questions that are coming in right now. Let me read this one from Karen. Thanks for your question, Karen: “I know that I can take 25% tax-free from my defined benefit pensions, but why can’t I cash them in, take 25% tax-free and invest the rest?” Is that a tricky question?

Philip Brown: You are into a complicated subject.

James Rowe: We have gone complicated for the first – Karen, you have thrown a curveball at the beginning, Karen.

Philip Brown: Clearly there is two very distinct types of pension available to you. You have got a defined contribution pension – which is something you save into and your employer probably saves into it too, if you are getting it through the workplace.

James Rowe: And that’s the most common one today.

Philip Brown: And that is the most common one today. And then you have schemes that are based on your income, either the lifetime of your income or your final salary or a version of final salary – it could be a career average or there is a variety of ways that is done.

Now, with that kind of scheme, because of the inherent guarantees built into it, it always gives you inflation proofing – and it generally has other benefits associated with it for your spouse, potentially for children as well, depending on their age. And therefore, you are in a position where if you are considering something like that, you really have to take advice.

And there are rules that the Financial Conduct Authority have. So, if your scheme is over, I think from memory, £30,000 in value, then you have to take advice before you can make a decision like that. If it is under £30,000 you don't necessarily have to take advice, but I would advocate you thinking very hard about the guarantees you are giving up.

James Rowe: An interesting one from Mick here and I think this might help a lot of people understand how this works. Mick wants to know: “How is the 25% calculated? Is it at the time your pension switches to drawdown? When do they calculate this 25%?”

Philip Brown: It is a good question. It is basically calculated at the point you ask. So, it depends on the value of the pension on the day you are asking to do that. You will be taken through a standard process that allows you to access that tax-free cash. But it is the point at which you ask for it.

If you then have really impressive returns afterwards you have had your 25%, which is why I said earlier don't think about it as something I have to do now. Think about about the longer-term consequence of taking that money out and consider what your actual income needs are in the long-term. What kind of retirement are you aspiring to? So, back to those retirement living standards – and the three that are set there are called minimum, moderate and comfortable. Choose the one you think is the one that fits the kind of lifestyle you want, and then you can work backwards from that to see if you have enough retirement income. Think about other assets you might have. There is lots of things to do there and certainly get the free guidance that is available to you or the impartial guidance that can be provided by the Pension Wise service.

James Rowe: I know we are talking a lot about this tax-free lump sum but do you think a lot of people consider that they can put this off after 55? Or do you think a lot of – you speak to a lot of people and they just assume that because you can do it at 55, you almost have to do it at 55?

Steven Tait: I think there is definitely an educational piece around that and I think there is a lot of merit in a lot of the stuff that Phil covered there in terms of considering the impact on your pot. And indeed phasing, in terms of it not having to be a lump sum, but again being really clear on what you want to use it for.

The beauty of where we are in terms of the operating environment is that there is flexibility. And I guess just taking us back to one of the other earlier discussion points, I think the other point is we shouldn't be thinking about drawdown and annuity as discrete. So, there is a real opportunity again to consider flexibility versus certainty. And we talked about essentials and lifestyle. If you want to lock in coverage for your essentials, then you can – you can buy an annuity and have drawdown. Again, the benefit of the flexible environment we are in. So, real consideration around not considering them being one or the other – it is about what works for you.

Philip Brown: And that annuity choice is fairly complicated to think about because you are making a decision you potentially cannot change once it is made. So, once you are past the statutory cancellation period, it is not always easy to come out of these contracts.

And actually, one should really think about: “Do I need the income from the day I retire to be certain?” And that comes back to the points that were made earlier about thinking about whether you prefer certainty over flexibility. Can I buy a series of annuities over a period of time? That might end up in a different outcome. You might get more, you might get less – it depends on what is going on with interest rates and investments.

But there is a variety of ways you can use annuities. So, it is not necessarily as simple as just saying: “I want to buy an annuity today”. And we are seeing a lot more propositions in the market now that use a combination of drawdown in the early years and annuity in the later years. They are regularly called things like flex and fix. So, they give you flexibility in the early years and then they give you certainty in the later years of life.

James Rowe: And a lot of this came – was it in 2015 when the pension freedoms came into force? So, about 11 years in now and do you think a lot more people are taking into this into consideration because previously you didn't really have a choice, did you? Whereas now you do have that flexibility.

And just to pick out a question from Jeremy – thanks for your question, Jeremy. Steven, I appreciate you have touched on this a bit but I think it might be worth getting into it a bit more: “Is it possible and is it wise to adopt a mixed approach to both annuities and drawdown?”

Steven Tait: It is absolutely possible. Again, it comes back to the fundamentals around objectives and flexibility versus certainty. So, I guess rules of thumb in terms of how to approach this: in your earlier years you might want to consider with drawdown the opportunity for your pot to continue to grow – remain invested in the market. So, therefore, actually exposure to – you will have to live with some of the downs but clearly as well as the ups. So, there is an opportunity to maintain and grow that pot. And if you did want to combine that with some degree of annuity, then you do have the ability to combine growth as well as income certainty. So, is it wise? It could be – depending on again how you want to approach your later life. But as Phil articulated, there are increasing opportunities for people to consider building blocks that enable good outcomes and all aligned to what you want to live for in the future.

Philip Brown: I think it is worth saying if you are a few years away from retirement, there are new solutions coming as well. So, if you are in a workplace pension, there is a Pensions Schemes Bill going through Parliament at the moment, and that Bill contains the concept of guided retirement solutions and guidance pathways. And that will actually mean your pension scheme in future, if you are in the workplace, will provide you with an income that will be sustainable. So, they will look at how that should be managed over a period of time if it is using drawdown – they will look at life expectancy and how to deal with guarantees, and they will make some of those hard choices for you.

Now, that won't be perfect for everyone, but it will be kind of like how auto-enrolment works, that it is a solution where you can't go necessarily horribly wrong – and you will have a set of trustees sat behind that pension scheme thinking about those choices for you.

James Rowe: Joanne, let me put Louise’s question to you. Thanks for your question, Louise. It is about annuities – and this is about the nuts and bolts of annuities as I mentioned before. “Is the annuity index linked,” asks Louise, “or if you start at £20,000 per year does it remain at £20,000 for the rest of your life?”

Joanne Padilla: The good thing about annuities which a lot of people don't realise – because we do still get members that call in and say, “Oh, well I hear that when I die the annuity dies with me” – but there are actually options that you could build into your annuity. But they are just decisions you do have to make at the time you are taking out the annuity, like do you want it to be increasing every year? So, it does mean that you may start off with a slightly lower income because each year you have chosen for it to go up by 3% or 5% or whatever index you may have built into the plan.

Equally, you can choose to have a guaranteed period where you are not thinking, “Oh, I am not going to live for a long period of time”, but just in the event that I die within the first 15 years of the plan, somebody else could benefit from that income for the remaining period. So, if you die like seven years in, somebody else will actually get the income for the other eight years. So, there are ways that you can protect your annuity income from it not just disappearing if you had a very early death. But there are things that you need to consider at the outset and you need to build it into the plan at the outset. So, you can't sort of add it in like five years later.

James Rowe: Do you think there needs to be – this is my question, forgive me for interrupting your questions – but do you think there needs to be a bit more education around annuities? Because I think it is almost a common theme, isn't it, that a lot of people think that your annuity dies with you and that is full stop, that is the end of it, but as Joanne you say there may be options elsewhere. The education might need to be improved to make sure people understand.

Steven Tait: I agree. And places like MoneyHelper and the advice lines and guidance through the evolution of the journeys and the customer journeys that we now offer in the run up to retirement and at retirement now mean that we have to really educate and ensure that customers, clients, are really fully aware of the options available. But I think there is more to be done, I think you are right. And that is why that review versus react point around your financial plan and really seek out – there is a lot of good content available, tools and calculators as well. But the broader fundamentals of annuity, there is certainly more to be done.

Philip Brown: There is probably an aspect to think about here as well. It is not just about what happens if I die too soon, there is also what happens if I live a very long time. And that is when an annuity keeps paying. So, there is two different ways of looking at this. And if you do have any kind of life-limiting conditions, there are enhanced annuities where they will conduct an underwriting process and they will try and work out a more specific life expectancy for you and that can then generate a different level of income than you would get from what is known as a standard rate annuity.

James Rowe: This question – they have not left their name, but it is going to get into some pension changes for accessing the lump sum. The age changes from 55 to 57, is that right?

Philip Brown: Yes.

James Rowe: So, this person wants to know – because they turn 55 three months after the change comes into place – does this impact both public-sector and private pensions? Currently I can access part of my public-sector pension at 55.

Philip Brown: It is a really good question. And what is actually happening with pension ages is accessing a pension generally is set at 10 years below state retirement age. That is why that is changing because state retirement age is also going up.

Now, whether you can or cannot access it actually depends on the rules of the scheme you are a member of. So, there are some schemes that do have what is known as a protected retirement age. So, if your scheme says 55 today and you are only 30, you will still be able to access it at 55 even though the law has changed. So, it depends on the specifics of your scheme. I think for public-sector schemes, that is a bit different because they are laid down in statute – and it depends what the actual scheme rules say of that scheme at the moment. There are some special conditions for certain types of employment where they are allowed to retire early, but again you need to know what the scheme rules actually say.

James Rowe: Julie asks: “If you continue to work after retirement age, can you still pay into your pension and how much of your pension can you draw down?”

Joanne Padilla: I mean certainly yes, if you technically anyone could contribute to a pension up until your 75th birthday and you still get tax relief on your contributions. So, even if you have come up to state pension age, you may still be working part-time, you could still contribute into a pension up to that 75th birthday and get tax relief – even if you are not working, you could still do the minimum allowance, which is £2,880 per tax year and you get tax relief to round it up to £3,600, again up to your 75th birthday. So, definitely you can.

Philip Brown: I think the only thing I think you need to be careful of with those is the amount of tax relief you are allowed changes. So, once you have accessed a pension, it at the moment you get tax relief on up to £40,000 worth of contributions, which is way beyond what most people normally pay. Once you have accessed the pension, that is restricted down to tax relief on £10,000 worth of payments in. But you can certainly – as has been confirmed – pay in.

Joanne Padilla: Yes, so the money purchase annual allowance. A good thing though is if you – for those who do have defined benefit pensions – that doesn't impact that restriction. So, you could still – you could take your defined benefit pension and if you are still working otherwise, you could still contribute up to your annual allowance of your income, not with the pension.

James Rowe: I am going to ask a question from Barry in just a second, but it is about financial advice. But before I ask that question, is it worth trying to let everyone know the difference between what we would call advice and what we would call guidance? Because there is a bit of a difference, isn't there?

Joanne Padilla: It is indeed, yes. So, my team here at Which?, the money helpline team, we give guidance. So, really what we are able to do is to discuss or educate you on the different options that are available. But we can never tell you: “This is the best thing for you to do” or “This is what I think you should do” or “You should choose this option”. That really has to be you making an educated decision after we have given you the options. Or there are times, depending on the member that we are speaking to, we may actually say: “A financial adviser might be the best option for you if you find it difficult to absorb the information on how these products work and your choices”.

James Rowe: And then how does financial advice differ to that then?

Steven Tait: I mean it is all around personal circumstance, right? So, it is all hinged on suitability and a personalised recommendation. So, ultimately, an adviser will create a plan for you, with you, that is absolutely tailored to your needs and will recommend a way forward – and grounded in suitability. So, it will be tested around capacity for loss, your attitude to risk, and really bespoke to you. So, the key difference there around educated but you making the decision versus an adviser that fundamentally is providing a recommendation on a way forward for you to accept ultimately.

James Rowe: With that in mind then, let's go to Barry's question: “Is it better to get financial advice when taking pension as drawdown? Would the advice potentially increase my income?”

Steven Tait: Oh, it's a good question. I mean it all comes down to circumstance and where you are in terms of the pot size and approach. I think there are a number of – we have talked about a number of options available, MoneyHelper tools and calculators out there that you can utilise to give yourself a really good head start in terms of that plan – the helpline here, right? So, there is a lot of grounding you can do. I think if you are seeking – if it is just complex and complicated, then clearly advice will enable you to cut through that.

I guess historically there has been quite a focus on the cost of advice. But what we are seeing in the market is a number of propositions coming out now with the onset of the digital capabilities that are really looking to bring that down and bridge what is termed the ‘advice gap’. So, that remains. I am not necessarily sure that it will give you a better outcome if you get advice versus non, because fundamentally that is all around the circumstance and that plan. What it will do is it will give you that reassurance and ensure that you have considered every aspect, risk and opportunity. So, I think those are the key fundamentals you really have to consider before deciding whether you want to embark on that advice journey.

James Rowe: And where are we with that advice gap? Because I remember sitting in this very podcast studio about a year or so ago and we had a financial adviser in here – we do this podcast every single week and we talk about all sorts of things – and we were talking about that financial advice gap and how a lot of financial advisers need you to have X amount of hundreds of thousands of pounds in your portfolio. So, where are we with that? Is that gap coming closer together to make it a bit more accessible for more people?

Steven Tait: So, I think we are on a journey with it. That gap still remains. What I would say – and we have had some recent entries into the market – there has been a new concept called targeted support. And that is a really interesting evolution by the FCA, the regulator, which effectively starts to effectively enable firms to provide personalised information. So, offering solutions that are based on a segment of customers – so, people in similar circumstances tend to do this kind of action. So, these are ways and means of the regulator trying to encourage providers and other firms out there to provide more tailored services and solutions that are not necessarily advice, but are more tailored to individual circumstances and more accessible.

And then I think fundamentally there are absolutely more digitally-led services that are focused on providing advice and can be done so at a much lower cost and we are starting to see some of those come out. So, I guess the short answer is we are still on a journey, but I am really buoyed by the onset of these targeted support propositions as well as the innovation in the market where we are seeing more access.

Philip Brown: The regulator is also consulting at the moment for another change in their rules which will bring in the concept of simplified advice – advice that can be targeted on a specific aspect of your life rather than holistic advice that looks at all aspects of your life. So, there is more solutions coming along.

James Rowe: You are nodding away there as well, Joanne. Do you hear these sorts of questions from people who ring up as well?

Joanne Padilla: Yes, all the time. It is a tricky one – because obviously we do sort of mention to members that even when we explain to them about annuities or drawdown and so forth, sometimes you can clearly tell when someone is thinking: “This sounds like a whole foreign language to me”. And really and truly, like I said, we will then say: “Then in somebody in that position you really should seek professional advice, financial advice, because they are there to hold your hand through the whole process, make sure you understand everything and so forth”.

Yes, there has been a gap where some people may be with lower assets not necessarily see a financial adviser as being a cost-effective way of spending their money because they don't necessarily have £500,000 or more in the bank or in pension pots. So, it is really good that there are more solutions being put forward to try and help people across the board because they are difficult topics to get your head around, to be quite honest. And all of us sitting here on the panel, we have had many, many years of learning about these things to be able to talk to people about them. But a lot of people you start your first job, “Oh, I put money into a pension” and that is all you know about it until, “Oh, I am 45 now. What am I doing?” So, yes, it is definitely a good thing that these changes are coming abroad.

James Rowe: I have got a question from Tamara who has put a question in the Q&A. I will come to it in just a second, but bear with me because I just thought we could answer this pre-submitted question from Vanessa. It is still on financial advice. “How can I find a reliable, honest financial adviser? Where would Vanessa start with something like that?”

Steven Tait: So, there are a number of online ways of finding advisers – you know, there is Unbiased, there are a number of industry bodies where you can get access and find reputable advisers. I mean the other thing is fundamentally if you have friends, family, anyone who has engaged with advice, the key thing is around testimonials around those who have accessed and had good service. But I would encourage going online and finding ways to access directories of advisers, that would be my go-to.

James Rowe: Let's go to Tamara's question then: “How much should we expect to pay to get one-off tax and pension advice from an adviser?” Is this another one for you, Steven, or?

Steven Tait: It kind of varies. And it really is, if you think about what a number of the IFA networks – the independent financial adviser networks – and those who are employed by banks and building societies or others, they are trying to balance the cost of delivering the advice and the relative risk associated with whether versus providing a really solid service.

So, you can see initial advice fees in and around the 3% mark, roughly – that can vary – so, around £1,000 perhaps in terms of that initial advice but can be lower. And then you can choose – I mean the great thing is there is an opportunity to then choose what is called ongoing advice, ongoing service. That is optional. But you can then opt into that – you can have one-off advice or you can opt into that and there are a number of ways and means of remaining engaged. You do have to pay for that, but what you get there is a wrap-around service which includes annual review and access to that adviser. So, again, there is a spectrum of charges but fundamentally the service tends to look like an initial advice piece really helping you craft that plan and then there is an option to then engage on that ongoing service.

James Rowe: Shall we move on to a different area of pensions? I guess this might be a bit earlier in this pension planning journey that a lot of people will be going on – a question from Kanchan here who says: “I have multiple small pots of defined contribution pensions. What's the best thing to do and how easy is it to have it in one pot? Or should I keep them in separate pots?”

Joanne Padilla: Yes, it's always one of those questions where there is no right or wrong answer. There are people that simply because they don't like to have to deal with five or six providers, they think: “Oh, I'd rather have it in one or two places”, and that is better for them because then they get less communications, less people to contact and so forth.

But predominantly with these pots, you do find that some providers, the more you have with them the charges go down. So, it could be that instead of having £20,000 here, £50,000 here, there may be a provider that if you have £100,000, the fees are reduced. So, looking at the cost of what you actually pay on these individual pots, that could be a very big driving factor on whether to amalgamate them or put them all with a different provider that is cheaper because you do have a larger amount with that provider. So, it's something worth considering, but there is no right or wrong answer with regards to whether to amalgamate or not.

Steven Tait: I guess there are a couple of watch-outs there in terms of considering what benefits you might be giving up by transferring it. So, we talked about the guarantees, some of the other protected benefits. So, absolutely consider that hassle factor and the admin and potentially the lower charges, but equally make sure that you are really clear on what you might be giving up by doing that consolidation.

Philip Brown: Yes, and I think you need to take a lot of care with looking at where you are transferring from and to – because if you are in a workplace pension, there could be an effect on employer contributions if you transfer out of an existing scheme that you are actually paying into at the moment – and you need to think about the fact that you are giving up very particular protections in the workplace.

So, there is a charge cap in place that prevents you from being charged above 0.75% in total for your pension scheme – and you are in funds that are generally designed to behave a certain way. So, the schemes are designed to – as you approach retirement – to make sure you don't see huge moves in volatility. And one needs to think about those in relation to where they are moving the money to – and it is not just about going to somewhere with a cheaper charge, but you have got to think about the returns you are going to get as well. It is about the value the pension is providing for you. Cost is a very important dimension but it's not the only dimension you should look at.

James Rowe: And I think the pair of you today have mentioned that ring-fenced retirement age for a specific scheme you might be on. So, if it currently says 55, that might be guaranteed. If you were to move the cash out of there, move it somewhere else, that new age in the new place could be 57, for example. So, you are giving up that 55 age to access that cash. What other benefits might you be giving up? Can you only give us a few more examples of that?

Joanne Padilla: I think it depends on how long you have had the pension. I mean there are some defined contribution pension pots – depending on how long you have had them – that had guaranteed annuity rates attached to them. So, just like my colleague has just mentioned, things like that we will always say you need to check before you even decide to look at amalgamating any pension pots – because anything that has that type of guarantee, you may end up having to take financial advice anyway because it is going to be mandatory if the pot is over £30,000. But guaranteed annuity rates – historic ones – probably much higher than what is on offer today. So, you know, it could be you're losing a lot of value by doing that. So, you do have to get the background of your pension before you make any decision.

Philip Brown: And if you're my age, you might have been around when retirement annuity contracts existed – and a retirement annuity contract has a very different calculation method for the amount of tax-free cash it can take out. So, you can take out what effectively ends up being a third of the value of the pension rather than 25%. So, it's more like 33.34%. But it depends on the kind of contract, when you bought it – those ones are very specific and they are pre-1988, those contracts.

But these are things you need to think carefully about. So, you might look at pensions after seeing an advert and think: “I really need to amalgamate all these things”. But the direction of amalgamation becomes really important when you know whether those benefits you have got have special characteristics and whether more money going in would gain that special characteristic as well. So, it's a really, really challenging area to think about and there is lots of things you should consider.

I think the biggest warning we could ever give anyone about a pension transfer is if you're ever told it's time-sensitive, it's not. And if you're told it's time-sensitive, be very careful that you're not in a situation where you're not dealing with a bad actor in the market who's not authorised – and you may be subjected to pension scams, which unfortunately are part of the landscape these days.

Joanne Padilla: I was also going to say that also as well, they have a lot of pension pots which were probably like in with-profits funds. Again, that's a little bit of a technical term, but it's a type of investment strategy where a lot of the return is on a terminal bonus which is only paid at a certain time. So, again, if you don't know the background to your pension, that is something where you could be making a big loss by transferring it to another provider without knowing the details. So, yes, definitely a good thing that these changes are coming abroad.

James Rowe: We did also actually talk about pension transfers on our podcast a few weeks ago. And one of the big concerns is the length of time it takes as well. They are meant to be able to be done pretty quickly – 10 days or so – but some, in some research we did for Which? money magazine, are taking weeks if not months. That’s a huge concern for people, isn't it?

Steven Tait: Yes, absolutely. And I think – again, to coin a phrase I used earlier – we are on a journey. There are some underlying infrastructure that is now being embedded in the market which is seeing a number of providers plugged into it and therefore actually some of the speeds are pretty quick. There is a dependency on the complexity of the pension that is being transferred. But fundamentally, with the onset of the infrastructure that is being embedded in the market – and a nod to things like the pensions dashboard and other innovative innovation within the market – we are starting to see that being embedded. But fundamentally, there is still a challenge and we as an industry need to acknowledge that. However, it is getting better – and there are other firms out there that are enabling the joining of the dots. And a big thing is data and paper-based versus non, fundamentally. And again, like many other industries and crafts, we are on a modernisation journey. We just need to do it quicker. But I would say that we are on the right track.

Philip Brown: Yes, I mean there's many reasons why that happens and there are more than – as we have said earlier – more than one kind of pension in the market. And it depends on whether that scheme has trustees who have to sign off the process – which is something that has been around a long time. I am not justifying it and saying that it is correct, but it depends on how that scheme is designed. Most of the people in more modern pensions are in pensions that move relatively quickly. There are certain checks that are done to make sure that you are not potentially being subjected to a scam. There are other checks that are done to make sure that you are the actual owner of that pension – so, it is checking the identity of you to make sure that money is going to the right place. And I would say we need to think about why we want to focus on the speed, because that is probably not the only thing we should think about. We have got to protect the member of the scheme in this process as well. So, I am not justifying how long some pensions take, but we need to think through more than one version of what is the right way to do this.

James Rowe: Philip, you mentioned SIPPs before – just in passing at least anyway. And I appreciate these are a bit more complicated, but I thought I would pick out a question from somebody who did not leave their name, so apologies I cannot say thanks for your question. But what are the pros and cons of consolidating – so, we are sticking to this topic I guess a little bit – consolidating into a workplace pension versus a SIPP? Does the former usually have lower charges?

Philip Brown: So, that is a really good question, but unfortunately it does not have a straightforward answer. We have only got 10 minutes left, so I hope you think it is straightforward. So, if I refer back to the conversation we have had already this evening, you have got to think about what your pension currently gives you in terms of benefits – what the pension you are moving to does or does not give you. The relative charges of where you are moving from and to, and the performance of funds from where you are moving from and to. So, it becomes quite a complicated decision. It is not as straightforward as looking at just a headline charge. There are a number of different ways that charges work in the market, so it is quite difficult to take scheme A and scheme B and line them up side-by-side. So, unfortunately, there is not a straightforward answer. And if I answered his question directly, I would be actually giving him financial advice, so that is something that I cannot actually do.

James Rowe: Very true, very true. Somebody again has not left their name, but I want to read it out. It is not a question, but I think it might ring true with a lot of people who are joining us live and listening in. They say: “This has been so useful, but it has made me realise I need a pensions glossary before I even start to think about my retirement living standard”. Do you think that is fair? I think there is a lot of terms and words that we do not use in general parlance, I guess, is there?

Philip Brown: Yes, and I am going to apologise for using the acronym SIPP because that just stands for self-invested personal pension. It is a personal pension with wider investment choice than a normal, older personal pension. But you are quite right, there is a lot of language we use – and you have made me reflect on a letter I received when I was a head of customer services a mere 30-odd years ago – and that letter asked me to explain what a pension commutation was because we had just used it in a letter to a customer without thinking about the consequences of the language we were using. And actually, what it meant was do you want your tax-free cash? But those were not the words that are used in the letter; they are the technical terms that come from the Inland Revenue rules. So, we have to be, I think, really careful as an industry in how we communicate. And there's lots of organisations looking at communication – and I think providers are going a long way to change communication. There is actually some work coming out of DWP, I think later this year. So, when they work through guided retirement solutions, they are then going to look at the communications around retirement. And I think that will focus the entire pension industry's gaze onto how they communicate, why they communicate and what they communicate. So, there is another area where there's an improving story, but there are glossaries available if you really do want one.

James Rowe: We have not got long left. I am going to try and squeeze in a couple more questions. Let’s do this one from Simon – thanks for your question, Simon: “How much protection is given to your pension funds if your pension provider goes under? Is it like the bank's protection where you are only covered for a set amount, or is it the full amount?”

Philip Brown: So, this comes back to the kind of pension you are in again. If you have purchased an annuity, you have 100% protection. If you are in a DB scheme, that would end up going to the pension protection fund – so, again you are protected. If you are sat inside a drawdown vehicle, well, actually the investment value there is driven by what happens in the markets – and it is not quite as straightforward as is it protected. But the money you have in that pension should be segregated from all other client assets, so your money cannot be used in by anyone who is doing a liquidation process on a company that has failed. So, you are protected in all the environments. The amount of protection depends on the product you are actually in. But it is certainly not restricted to the £85,000 that you would have in banking, which has actually gone up to £100,000.

Joanne Padilla: £120,000.

Philip Brown: So, if you are lucky enough to have £300,000 inside a pension or inside an annuity, there is protection available that will try and keep you that value – apart from the annuity, which guarantees to keep you that value.

James Rowe: And then Tamara – not a question, but says: “I think this should be a subject covered in school”. Do you agree?

Joanne Padilla: I agree. I think in today's world there should be more about finances in general that should be educated to children. I mean my son's friends, they ask me now – some of them are on their second, maybe even third job and they are still in their early 20s – and they are like: “Oh, yes, I've got a small pension here, I don't know what to do with it”. And they just start work, start the pension, and then they move on. So, I definitely think there is more education that should be done to the younger generation or even like from maybe A-levels at minimum so that they are prepared for this part of life as well.

Steven Tait: Yes, I think the fundamentals around saving, right? And saving in all aspects, so we do not need to get into investments or whatever, but the fundamental building blocks and equipping kids and children in those early years – absolutely, I am very passionate about that requiring real input and industry as well, right, to engage in that, but absolutely fundamental.

Philip Brown: And it's worth saying all those people who have frequently moved jobs or took a job for a couple of years while they are at university, there is some work going on on small pots as well. That will come through somewhere in the next seven or eight years – and that will actually start automatically hoovering up those pensions for you. So, there's government initiative to actually make sure that schemes kind of have the pipework behind them that connects them up to a system that ensures that any small pots do not get left behind. So, in future the transfers thing's going to get even easier.

James Rowe: We have just about reached the end, so I think we will wrap up there. We have covered loads here today, haven't we? I think pensions and retirement is a really tricky one to get your head round, no matter what your age, but we have covered off loads of your questions there. So, hopefully, you have enjoyed this. Sorry we could not get through all of your questions; we had so many of them. But hopefully, you have found this useful. But we will wrap up there. Thanks very much to you, Philip.

Philip Brown: Pleasure, nice to be here.

James Rowe: Steven, thank you.

Steven Tait: Great to be involved, thank you.

James Rowe: And Joanne, thank you.

Joanne Padilla: Yes, thank you, it's been good.

James Rowe: That brings to an end another podcast from Which? There's loads more for you to read about everything we discussed today; just head to the episode description for more useful everyday advice. There you'll also find an exclusive offer for podcast listeners like you to become a Which? member for 50% off the usual price, giving you access to our product reviews, our app, one-to-one personalised buying advice and every issue of Which? magazine across the year. Plus your membership helps us to make life simpler, fairer and safer for everyone. If you'd like to know when we release a new episode, then make sure you press subscribe wherever you listen. That way you can be one of the first to listen. And for any questions, comments or anything in between, follow us on social media @WhichUK or email us: podcast@which.co.uk. Goodbye!