Pension pot pitfalls to dodge

New rules have given over-55s much more flexibility over how they use their pension pots.

But people taking money out must ensure they don’t end up making unwanted dents in their retirement income, whether by paying more tax than necessary, falling victim to a scammer or making ill-judged investment choices.

Here, finance specialists WEALTH at work outline the five top considerations for people withdrawing money from their pension:

● Understand the tax implications. Ultimately, tax planning should be at the heart of any pension transaction, as people could find themselves paying more tax than they need to if they don’t plan carefully.

● Consider how long your retirement savings will need to last. Many people now end up living longer than they had expected, which they must bear in mind when doing the sums.

● Know the risks around defined benefit pension transfers. These schemes promise savers certain levels of income in retirement, based on their salary. But they are not part of the pension freedoms. There have been concerns around the numbers of people wanting to transfer from DB pensions to defined contribution schemes.

● Pension scams. Many scams look perfectly legitimate so are not easy to spot. Others offer investment returns which are “too good to be true” but people easily get sucked in. More help is available on the Financial Conduct Authority’s Scamsmart website.

● Regulated financial advice can be better value than no advice. Many people don’t realise that when they buy retirement products, there can be charges deducted which can cost just as much, if not more, than getting regulated financial advice.