Not getting advice could cost you more than getting advice!

I recently went to visit a new prospective client who wanted to review their existing pensions.

During the meeting, the client told me that he had fully cashed in a former employer pension, which was worth approximately £45,000.

He told me that he had done so without seeking any financial advice and therefore 75% of the lump sum, which was taxable had been added to his gross salary in the last tax year and consequently he had paid some income tax at the higher rate threshold of 40%.

He is a member of his current company’s workplace pension scheme and is paying a high percentage of his salary into the scheme. However, another consequence of cashing in the former employer pension was that he has now triggered the Money Purchase Annual Allowance, which means that he is now restricted to an annual pension contribution of £4,000. He was unaware of the this, which has meant that he has had to reduce his payments into the scheme.

If the client had received financial advice, he would have been better informed to look at all alternative options to meet his objectives and therefore possibly reducing the amount of tax he would have had to pay and keeping his annual pension allowance.

Before making a financial decision, I would encourage everyone to seek financial advice, so even if you decide to ‘do it yourself’, you are at least informed of the consequences of your actions.