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Is your pension too restrictive?

5 June 2017

Is your pension too restrictive?

An increasing number of dentists are retiring in advance of the NHS pension 1995 section retirement age of 60. Personal pensions should be a useful source of income; however, some dentists find themselves trapped in an unsuitable pension contract which doesn’t allow flexible income options.

‘Pension freedom’ rules implemented in April 2015 were designed to allow individuals flexible access to their personal pensions. Despite this, it is apparent that many providers don’t offer this facility. Dentists who retire before their normal NHS pension age could find themselves unable to draw flexible benefits from personal pensions when needed. Those seeking to make one-off withdrawals from their pension pot or wish for flexible income may need to transfer to a more suitable pension contract.

How can I tell if my pension is restrictive?

Restrictive pensions limit access to withdrawals and have other negative features. Here is what to look for:

  1. They don’t offer flexible ‘drawdown’. This means you don’t have the option to stop and start income from your pension. This is especially useful where income is required on a temporary basis. For example, if you sell your practice and continue as an associate you may require a top-up of income but only until you reach NHS pension age.
  2. They don’t offer partial tax-free cash withdrawals. Personal pensions allow you to draw up to 25% of the fund as a tax-free cash lump sum. This can be a useful source of income. However, many pensions only offer an all or nothing approach to tax-free cash.
  3. They only offer income in the form of an annuity. Buying an annuity is usually an irreversible decision. This will start a taxable income stream that can’t be reduced and will probably result in the loss of valuable death benefits. Without the flexibility to increase or decrease annuity income, you may pay more income tax than is necessary. If you don’t need the annuity income this will accumulate outside the pension and potentially be subject to inheritance tax.
  4. You are invested in a with profits fund. This type of pension investment fund can impose a ‘market value adjustment’ at any time, devaluing your pension just when you need it most. You can’t control the timing of this so with profits funds are best treated with caution.
  5. You can’t manage the timing of a lifetime allowance (LTA) test. Taking tax-free cash or an annuity immediately tests your pension against the HMRC lifetime allowance. Taking partial tax-free cash tests only a proportion of your fund. As per point 2, if you don’t have tax-free cash flexibility you won’t be able to partially test against the LTA. Advice in this area is essential as the issues can be complex.

How do I access flexible pension benefits?

Finding the most suitable pension contract for your requirements is the key to taking advantage of pension freedom. This is likely to be through a SIPP (self-invested personal pension). While a SIPP is not suitable for everyone, it does generally unlock the restrictions described above. The choice of SIPP pensions is extensive, as are the investment choices available, so independent professional advice is crucial.

What SIPP charges should I expect to pay?

SIPP charges are not necessarily higher than other less sophisticated pensions. However, there are wide variations and some SIPPs providers charge significant administration fees for accessing flexible drawdown income, where others don’t. Some SIPP providers include this in their ongoing fees. An independent adviser will be able to compare the costs of SIPP providers.

Beware of high up-front adviser fees, especially where the adviser provides restricted advice. It is not uncommon to see initial charges of 3% for setting up a SIPP pension. For a £500,000 pension, this would be £15,000 – which I feel is hard to justify. You should expect fees for ongoing investment advice and the management of your pension. The level of fees should be commensurate with the work involved i.e. question what your adviser is doing for the fee and how often your SIPP funds are reviewed. Where an adviser can only offer restricted advice or ‘in-house’ financial products, it is unlikely to be worth paying an ongoing adviser's fee.


If your pension is inflexible and likely to prevent you from accessing pension freedoms you should take action to explore other options. Take independent advice on the most suitable pension for your objectives and be wary of with profits funds. Keep an eye on charges and ask your adviser what ongoing service they will provide and how often they will review your pension. Be aware that your existing personal pension may contain valuable guarantees which may be lost on transfer –  care should be taken to analyse this prior to taking action.

About the author

Jon Drysdale is an independent financial adviser for Chartered Financial Planners PFM Dental. For more information visit


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