Why making decisions about your pensions could soon become easier

Millions of people could get more support with their pensions under plans announced by the Financial Conduct Authority (FCA).

The regulator is concerned about low levels of engagement with pensions and the fact that most people aren't equipped to make confident decisions about their retirement.

Here we explain what these decisions involve, and how the regulator is planning to provide more help with them. 

Make your money go further

Find the best deals, avoid scams, and grow your savings with our expert guidance. From only £4.99 a month.

Join Which? Money

Cancel anytime.

Why more pension support is needed

More than 16 million people in the UK save for their retirement into defined contribution (DC) pension schemes, where the amount you end up with depends on how much you've paid in and how the underlying investments have performed.

At retirement, you'll need to decide how to turn your savings into an income. 

However, research by the FCA shows that three quarters of over-45s do not have a clear plan for how to take money from their pension or did not know they had to make a choice. Less than one in 10 adults have taken full regulated advice in the past 12 months.

Sarah Pritchard, executive director of consumers, competition and international at the FCA, said: ‘We want people to have access to the help, guidance and advice that they need, at a cost they can afford, when they need it, so that they can make informed decisions. 

‘We know people find pensions particularly difficult to understand, so we are deliberately starting with this to help consumers with their pension decisions.’

• Find out more: your options for accessing your pension

What could the extra support look like?

The FCA wants to address the gap between bespoke financial advice, where you receive personal recommendations about what to do with your money, and guidance, where you get more general information about your options (for example, from the government-backed MoneyHelper service).

It has launched a consultation setting out its proposals for free 'targeted support', which would allow firms to provide support to consumers in different scenarios – for example, where someone is uncertain about how to take a retirement income. 

Firms would be allowed to provide a bespoke suggestion to specific groups of consumers who share the same characteristics – rather than being based on an individual's exact circumstances, as is the case with full financial advice.

The FCA is seeking responses to the consultation by mid-February 2025. It will then consult in summer 2025 on the rules that would create a new framework.

The FCA is also seeking views on whether further changes might be needed to better support people, such as the use of digital tools, consolidation of pension pots and the rules around self-invested personal pensions (Sipps).

Retirement newsletters

Free tips to help you make the right choices when planning for your future

Sign up

The decisions you need to make at retirement

If you have a defined contribution pension, you'll need to consider how to turn these savings into an income to fund your retirement.

You can take up to 25% of your pot tax-free from the age of 55 (rising to 57 in 2028), and then access the rest of the money using any combination of the following: 

Buy an annuity

An annuity lets you swap your pension savings for a guaranteed regular income that will last for the rest of your life.

How much you get is determined by the value of savings you want to exchange, your health and the rate offered by the annuity provider you choose. 

The certainty that annuities offer is their main selling point, but once you've arranged an annuity, you can’t alter your level of income or switch to another provider.

If you take out an annuity as a result of using the service from HUB Financial Solutions, Which? will earn a commission to help fund our not-for-profit mission.

Check your annuity options

Which? says you can trust HUB Financial Solutions to compare across the whole market

Find out more

Use pension drawdown

Pension drawdown involves keeping your savings invested when you reach retirement. You can then take money out as you wish. 

Flexibility is the big selling point, as drawdown allows you to tailor your income to match your circumstances. But it also comes with risks.

Take out too much, too soon and you could run out of money. Plus, the value of your pot could take a hit if your investments underperform.

Take lump sums

You can leave money in your pension and take out lump sums when you need to.

You could also choose to cash in your entire pension in one go.

The first 25% will be tax-free and the rest will be taxed at your highest tax rate (by adding it to the rest of your income).

Where to get help with your pensions

If you’re unsure about what to do with your pensions, the best way to make sure you’re making the right decision for you is to enlist the help of a regulated independent financial adviser. 

However, cost is often a barrier. The adviser directory Unbiased estimates that at-retirement advice on a pension pot worth £250,000 would incur a fee of £3,000 on average. Consolidating pots worth £500,000 would cost around £5,000.

If you do opt to pay for financial advice, comparison sites such as Unbiased and VouchedFor can help you shop around for quotes from advisers, but make sure they’re regulated and properly qualified. 

Remember that if you’re 50 or over and have a DC pension you can get free guidance from Pension Wise, the government-backed service run by MoneyHelper. 

Unlike advice, this offers general rather than personalised information, and consists of hour-long face-to-face, telephone or online appointments.

• Find out more: how to plan for retirement