Where retirement help is free, and where it costs

Retirement produces a burst of decisions, and a burst of offers of help with them. Some of that help is free and government-backed. Some of it is a regulated professional service that is paid for. Some of it is neither, and is worth nothing at all.

The words used are not interchangeable, even though they are often used as if they were. The distinction between guidance and advice is a real one with legal weight behind it, and it determines what you can expect and what recourse you have if things go wrong.

Guidance: free, impartial, and deliberately non-specific

Guidance explains how the options work. It will set out what the choices are, how each is taxed, what the trade-offs are, and what questions to ask. It will not tell you which product to buy, which provider to use, or how to invest.

The government-backed service for this is MoneyHelper, which brings together the money and pensions guidance previously spread across several bodies. Within it sits Pension Wise, a free appointment service for people aged 50 or over with a UK defined contribution pension pot. Appointments are available by phone or face to face, and the size of the pot does not matter.

A Pension Wise appointment covers how each option for taking money from a pot works, the tax consequences of each, and how to recognise a scam. What it does not do — by design — is recommend a product or a company.

Term explained: impartial guidance

Help that explains options without steering you to any particular provider or product, and without taking a commission for doing so. Because it makes no personal recommendation, it carries no recommendation to be right or wrong about.

One limit is worth flagging. Someone with only a defined benefit pension usually cannot book a Pension Wise appointment, because the service is built around defined contribution pots. MoneyHelper can still help more generally, and the distinction between the two scheme types is explained in the pension statement most people file away unread.

Advice: a personal recommendation, and a regulated one

Regulated financial advice is a different product. The adviser takes your circumstances, your other assets, your tax position and your objectives, and makes a personal recommendation: this option, this amount, this provider, for these reasons.

That carries obligations. The firm must be authorised by the Financial Conduct Authority to give that advice, must assess suitability, and must document why the recommendation fits. It also carries a price, charged as a fee, a percentage, or a combination.

In exchange, the consumer gets protections that guidance does not involve — access to the Financial Ombudsman Service for a complaint about regulated advice, and, where a firm fails, the possibility of a claim to the Financial Services Compensation Scheme within its limits. Those protections exist precisely because a recommendation was made.

Side by side

A general comparison of the two services. The protections available in any particular case depend on the firm, the activity and the scheme rules in force.

The check that takes two minutes

Before acting on anything presented as advice, the firm should be looked up on the FCA Register. It is free, public, and shows whether a firm is authorised and for what.

Two details make the check worth doing properly rather than quickly. Authorisation is activity-specific, so a firm may be authorised for some things and not for the thing being discussed — defined benefit transfer advice, for instance, requires a specific permission. And the contact details to use are the ones on the Register, not the ones in an email or a cold call, because impersonating a genuine firm is a known tactic. That and related patterns are covered in the pension messages that never come from DWP.

What neither service does

This is where people most often approach the wrong door, and it wastes time and sometimes money.

• Your State Pension entitlement comes from DWP. A forecast is available free for people not yet receiving it; an existing award is a matter for the Pension Service. No adviser or guidance service can determine it, and nobody should be paid to calculate a figure that appears on an official letter. See this pension rise affects millions of Britons.
• A wrong tax code is for HMRC. There is a published route for reporting one, and it is free — the mechanics are in what the letters on a pensioner’s tax code are telling you.
• Benefit eligibility such as Pension Credit is assessed by DWP against published rules, not by a financial adviser.
• A lost pension starts with the government’s free tracing service, which supplies contact details rather than valuations.

Which one is appropriate when

Guidance tends to be the right starting point when the question is how does this work — what the options are for a pot, how each is taxed, what the sequence of decisions looks like. It costs nothing, so there is little reason not to begin there.

Advice tends to be worth paying for when the question is what should I do, given everything else about me — particularly where the decision is irreversible, involves giving up a guaranteed income, has significant tax consequences, or has to account for several pensions and other assets at once.

Many people reasonably use both: free guidance to understand the landscape, then paid advice on the specific decision. What is rarely sensible is paying for something that is actually free, or acting on a recommendation from a firm whose authorisation has not been checked.

A note on what this article is

It is neither of the above. It explains the difference between two services so that the right one can be approached — it does not assess anyone’s circumstances and makes no recommendation about any product, provider or course of action. For guidance, MoneyHelper is free. For advice, an FCA-authorised firm is required. For a State Pension question, the answer is with DWP.