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Kick-start your plans

HOW TO RETIRE IN 2020

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IMPORTANT INFORMATIONWe’ve written this guide to give you useful information about retirement planning, but it’s not personal advice.

What you do with your pension is an important decision and you can’t normally access it until you’re 55 (rising to 57 from 2028). We strongly recommend you understand all your options and check the option you choose is right for your circumstances. Take advice or seek guidance if you’re unsure. Tax and pension rules can change, and the value of benefits will depend on your own circumstances.

The government provides a free and impartial service to help you understand your retirement options. Go to www.hl.co.uk/pension-wise to find out more. We offer a range of information to help you plan your own finances and personal advice if you’d like it.

The information in this guide is correct as at 5 December 2019 and, unless noted otherwise, all figures apply to the 2019/20 tax year.

We’re Hargreaves Lansdown Asset Management Limited, a wholly owned subsidiary of Hargreaves Lansdown plc (company registered in England & Wales number 2122142). We’re also authorised and regulated by the Financial Conduct Authority (FCA register number 115248, www.fca.org.uk/register). Do not reproduce this guide without our permission.

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YOUR RETIREMENT PLANMaking it successful

If you’re aiming to retire soon, this guide could help you to make sure you’ve got a successful plan in place, so you can retire when you want to and receive the retirement income you need.

STEPS TO A SUCCESSFUL PLAN

1. Consider if you want to reduce your hours first, or give up work completely

2. Check you’ve saved enough to provide the income you want

3. Understand how you can access your pensions

4. Choose the right options for you, and get the best deal

If you have any questions about the information in this guide, or the services we provide, please call our retirement helpdesk on 0117 980 9940

(Monday to Thursday 8am-7pm, Friday 8am-6pm and Saturday 9:30am-12:30pm)

Email us:retire@hl.co.uk

Or write to us:Hargreaves LansdownOne College Square SouthAnchor RoadBristolBS1 5HL

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WORKING LESS, LIVING MORE

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Getting the balance you want

The transition from work into retirement is much more flexible than it used to be.

Employers can no longer force employees to retire just because they’ve reached a certain age. And in 2014 the ‘Fuller Working Lives’ initiative was launched, which aims to increase the retention and recruitment of older workers, improving work prospects in later life.

With more than a million people over 60 working part time in the UK, reducing your working hours, or changing jobs, so you can gradually move into retirement, might be part of your plan too. It could be easier than you think.

FLEXIBLE WORKINGIn June 2014, the UK Government introduced the right for anyone to request flexible working, which more and more people are taking advantage of.

It means you can apply to change the terms of your employment relating to the number of hours you work, when you start and finish as well as your location, to suit your changing circumstances. Your employer can only refuse your application if they give a valid business reason.

For more guidance on flexible working visit the Citizens Advice Bureau.

YOUR EXTRA TIMEYou might not think it now, but moving from employment to the extreme flexibility of retirement can be a jarring experience. Do you know how you’ll fill your time?

Too often, we meet clients on the verge of retirement who haven’t really given this much thought. In some cases, new retirees might end up going back to work on a full- or part-time basis, simply because they miss the social interaction or routine that comes with working life.

But there are so many opportunities for retirees nowadays. We’d encourage you to explore different options around the things you’re passionate about.

This might include volunteering in your local community, perhaps on projects close to your heart, or studying towards something new, maybe in arts or languages.

It’s your time. You should spend it doing the things you love.

The freedom to do what I want to when I want to.MR ALLEN, FROM COALVILLE

Time to indulge my interestsMRS CUNLIFFE, FROM

WORCESTERSHIRE

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Track them down and work out what they might pay

SPRING CLEAN YOUR PENSIONS

It’s important to work out if you’re on track to receive the income you need, so you can retire when you want to.

You might have built up various pensions across your working life. Including workplace pensions which both you and your employer paid into (or still do), private pensions or, if you’re lucky, a final salary pension.

If you’ve got a workplace or private pension, then you’ll probably get an annual statement to tell you how much you’ve saved so far, and how much it might be worth when you come to retire (depending on the retirement age your provider holds on record for you).

For final salary pensions the amount you’ll get will depend on how long you’ve worked for your employer and the salary you’ve earned over the years. You can contact your pension provider for more information.

It’s likely you’ll qualify for a State Pension too.

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STATE PENSION FORECASTFor many people the State Pension will play an important role in meeting their income needs in retirement.

However, lots of people don’t check how much State Pension they’ll receive and assume they’ll get the full amount (currently £168.60 per week or £8,767.20 a year, and rising to £175.20 per week or £9,110.40 a year from April 2020). The actual amount you’ll receive depends on your national insurance record and many people will get less.

You can use the government’s State Pension checking service to find out:

How much you could get

When you can get it

How to increase it, if you can

LOST PENSIONSThe Department for Work and Pensions has found that there are hundreds of millions of pounds sitting in unclaimed pensions.

Many in the pile are lying dormant because people have forgotten to keep past employers and pension companies up to date with their current address. Without sufficient contact details, there’s not much pension providers can do, other than wait for them to be claimed.

If you’ve had more than one employer during your working life it’s likely you’ll have more than one pension pot too. And if you’re not sure, it’s worth checking. Recovering any lost pensions can be a fruitful exercise, and can help you to get the most retirement income possible.

Even if it’s a pension from years ago, the government’s Pensions Tracing Service can help.

YOUR INCOMEResearch shows that 28% of people approaching retirement don’t know how much they have in their pension pots. So they won’t know what income to expect either.

It’s a good idea to have a decent understanding about this before you retire. Then you’ll have a better idea whether you’ve saved enough to retire when you plan to, or if you need to save a bit more before giving up work.

Our pension calculator can help. Using the details you enter, it’ll show:

An estimated value of your pension at retirement

The annual income your pension might pay

How much you could receive tax free

You can also experiment with different contribution rates and retirement dates to meet your needs.

Once you know what your pension might pay, the next step is to work out your expected spending.

MORE ON THE STATE PENSION AND CHECKING SERVICE

MORE ABOUT LOST PENSIONS AND THE TRACING SERVICE

PENSION CALCULATOR

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FUNDING YOUR LIFESTYLE Get a handle on your current, and future, spending

Experts typically suggest you’ll need between half and two-thirds of the salary you earn before retiring to maintain your lifestyle. But of course that depends on how much you earn in the first place, and your spending habits.

WHAT COULD CHANGE?Exactly how much you’ll need for a comfortable retirement will largely depend on your cost of living and lifestyle choices, which could change.

You might have paid off your mortgage by the time you retire, children who depended on you financially might have flown the nest and you might not need to commute every day, which could save you money.

But if you want to enjoy regular holidays abroad or take up new hobbies, you’ll need to make sure your future spending doesn’t outweigh your current savings.

Something else to consider is what would happen if your health took a turn. It’s not something we like to think about, but if you need long-term care in the future knowing you’ve made provisions (perhaps by taking out personal health insurance) can be a weight off your, and your loved ones, shoulders.

REVIEW YOUR BUDGETStart by taking a look at what your annual or monthly spending is now. Look through statements and add up what you spend on essential items such as food and utility bills as well as other expenses like transport and hobbies.

To help you work out whether you’re going to be able to afford the retirement lifestyle you want, tweak your spending costs to reflect any expected changes.

Easier said than done? Our household budget planner can help:

Compare your income and expenditure

Get an idea of what you might have left over

BUDGET PLANNER

Your results

Annual income – after tax and other deductions:

Employment income £40,000

Self-employed income

£0

State pension £1,900

Pensions in payment £0

Savings & investment income

£1,000

Property income £0

State benefits £0

Other income £0

Total: £42,900

Annual expenditure

l Household £24,000

l Living £5,500

l Leisure £6,200

l Finance £500

l Travel £1,230

l Additional £0

Total: £37,430

Annual difference: £5,470

Monthly difference: £455

TO DO LIST

Get everything ready – track down old pensions and get a State Pension forecast

Use a pension calculator to see how much income your pension could pay

Use a budget planner to work out your spending

If you’re not on track, consider topping up your pension, or increasing your contributions

If you can’t afford to top up, consider retiring later

Time to do the things I enjoy and travel.MISS INNES, FROM MIDLOTHIAN

More time to spend with family.MR MCCARTNEY, FROM TYNE

AND WEAR

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TAKING MONEY FROM YOUR PENSIONThree main options

The earliest you can take your pension is normally 55 (57 from 2028). At this time you can usually receive up to 25% of your pot as tax-free cash and choose between three main options for a taxable income.

There’s no rush to make a decision or one rule that fits everyone. When and how you decide to take money from your pension will depend on your own circumstances.

Lots of people might decide to dip into their pension in the early years so they can work part time or start a business. Others might hold off until later because they still love working or have other income to rely on.

Many also choose a mix of the options to match their needs, benefiting from both secure and flexible income. The choice is yours.

Pension and tax rules can change, and benefits depend on your circumstances.

If you’re unsure about what you can do with your pension, you may want to use the government’s free and impartial Pension Wise service to help you understand your options.

If you’re not sure what’s right for your circumstances you should speak to an adviser. Our award winning advisory service offers one-off and ongoing financial advice which could help you to reach your goals. There’s no pressure, and you’ll only pay for the advice you need.

SECURE INCOME FOR LIFE Some bills, like your groceries, heating and healthcare, never stop. So for peace of mind, you should make sure your essentials are covered with a guaranteed income.

The State Pension, and maybe final salary pensions from work, could give you a good base of secure income. But if this isn’t enough, you can always convert some or all of your pension into an annuity, where you buy a guaranteed income for life from an insurance company.

You can choose features that’ll provide protection against inflation, or mean your income will continue to be paid to your spouse or partner after you die. But think carefully about which features you choose before you go ahead, because the trade-off for security is a lack of flexibility. You can’t usually change the terms once an annuity’s been set up.

If you think an annuity could be the right choice for you, it’s important you do everything you can to get the best rate – the most income. This means shopping around for the best deals, because the top providers change all the time.

You could also get more income by confirming details about your lifestyle and any health problems you have (or have suffered from in the past). Even just confirming your height, weight and alcohol intake can increase your income.

Annuity rates change regularly and may go up or down in future. Quotes are guaranteed for a limited time only.

MORE ABOUT ANNUITIES

FLEXIBLE INCOME If you’re looking for more flexibility, you could consider drawdown. With this option, you choose where your pension’s invested and can draw an income from your investments whenever you need to.

The aim is to keep your options open and increase your income through investment growth. Anything left over when you die can also be passed on to your loved ones, tax free in some cases.

But the danger is you could run out of money if your investments perform poorly, you withdraw too much too soon or you live longer than expected. This makes it a higher-risk option than an annuity, so it isn’t for everyone.

To give you the best chance of success, it’s important you plan carefully. This includes choosing a strategy for taking an income, and then choosing investments that fit that strategy.

LUMP SUMS With annuities and drawdown, you can take your tax-free cash as a single payment first.

Lump sums (or their full name, Uncrystallised Funds Pension Lump Sums – UFPLS) are different.

25% of each lump sum you take is usually tax free and the rest is taxable.

Anything left over stays invested as you choose and can be passed on to your loved ones in the same way as drawdown. This means the risks are similar to drawdown and it’s also a higher-risk option than an annuity.

With drawdown and lump sum options you need to be mindful of how long you need your pension to last. Unlike an annuity, your income isn’t guaranteed because investments can fall in value as well as rise, so you may not get back what you originally invested.

Taking large withdrawals could also affect your tax situation, so make sure you’ve planned for this before making any decisions.

To avoid any nasty surprises you should check what Income Tax you might pay before you make a withdrawal.

MORE ABOUT LUMP SUMS

INCOME TAX CALCULATOR

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ANNUITY CASE STUDY: Mr Robin Cooper

Robin Cooper from High Wycombe, bought an annuity when he retired in May 2018. We spoke to him to find out more.

“After I left corporate employment, I did some consultancy work in the run up to my retirement.

I’m absolutely loving retirement. I keep myself busy and I’m fortunate to be in good health. I live in the Chilterns with my partner. It’s a very idyllic place to retire.My hobbies take up most of my time now.

I play the drums for a covers band called Red and Grey. We’re named after our original and current hair colours! We cover anybody from the 60s to the present day – anything from the Beatles to the Foo Fighters. We do it all for charity and over the years we’ve raised £12,000 for Cancer Research.

I’m a bit of a Francophile so we tend to go to France once a year and we often visit my brother in Belgium. To keep my French skills up to scratch, I go to a French class every week.

I’m very fit and active. I play tennis regularly and, for the first time in my life, I’ve been getting lessons to improve my game.

There’s a lot of longevity in my family, so for me, buying an annuity was the best thing I could do with some of my pension pot. Flexible income isn’t a priority because I have plenty of savings I can dip into if I need to.

Fortunately, annuity rates have come back to a respectable level in recent years. So I was able to get a rate of 5.4% which I thought was very reasonable. I took a 10 year guarantee just in case anything happens to me before my partner is able to access her pension. I was pleasantly surprised by how little the income reduced for selecting the option.

All in all, I’m confident I’ll be able to live comfortably throughout my retirement thanks to the secure income I’ll be receiving.”

Buying an annuity was the best thing for me.

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DRAWDOWN CASE STUDY: Mr Philip Smith

Philip Smith from Sheffield, takes a small monthly income from his drawdown account to help fund his adventurous lifestyle. We spoke to him to find out more.

I did think I’d want to go back to work, take on a few short contracts here and there, but I’ve had no desire to.

After a long career in IT, I’ve really enjoyed spending as much of my retirement outdoors as I possibly can.

Every few weeks we take shorter trips to go camping and hiking. We kitted out a van recently which makes going on mini trips whenever we feel like it really easy. And there’s a bed in the back so there’s no need to waste money on hotels.

I’m a passionate rock climber and I recently went with friends to Getu Valley in Southern China to climb the amazing cliffs there.

My outgoings are actually quite small and I’m pretty low maintenance. All the things I want to do are outdoors and – apart from getting there – free to do.

I need around £20,000 a year to live the life I want. I have a small final salary pension which provides some secure income and I top this up using drawdown.

My drawdown account is full of investments that pay a high income because I only withdraw the income my investments produce. This gives me enough to live off, and it means I never have to sell any of my capital. By not selling my capital, I’m hoping my wife and son will be able to inherit a significant amount when I die. When my wife retires, I’ll move more of my pension into drawdown to top up our income further.

Year two of my retirement is already looking busy. Holidays in Spain and the Hebrides, and climbing sandstone cliffs in West Virginia – all lined up for 2019!I retired in April 2018 and

I’ve not looked back since. I’ve not missed working at all.

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MAKING THE MOST OF YOUR TAX-FREE CASH

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Short, medium and long-term ideas

You can usually receive up to 25% of your pension tax free. If you move your whole pension into drawdown, use it all to buy an annuity or take everything out as a lump sum, you’ll receive all your tax-free cash in one payment. If you do it in stages, you’ll receive your tax-free cash in stages too.

It’s up to you how you save or spend this cash. You might decide to use some for your day to day expenses, to pay off your mortgage or to take an extended trip abroad. It’s your money and your choice.

Remember though, your retirement might last 30 years or longer, and inflation reduces the spending power of cash over time. So having a plan for your cash is important.

Pension and tax rules can change. The value of any benefits will depend on your circumstances.

SHORT TERMA good rule of thumb is to look at how much cash you’ll need for the next 6 months, and keep this readily available in an easy access account and/or your current account.

You might not get the highest interest rate, but you’ll be able to access your money as soon as you need it.

MEDIUM TERMFor the cash you don’t need right away you might consider fixed term savings. This is where you tie your money up for a set period in exchange for a higher rate of interest than easy access accounts.

You won’t be normally able to withdraw the money until the term’s up. But you might decide to set up a number of fixed term savings products so they mature at different times. For example, one that pays out after 6 months, another after 3 years and a third after 5 years. This gives you more flexibility and means you don’t tie up all your money for longer than you need to.

If this interests you, you might want to consider HL Active Savings.

LONG TERMFor any cash you’re happy to tie up for longer than 5 years, you might want to consider investing.

Over the long term shares have tended to outperform cash, although there are no guarantees. Unlike the security offered by cash, all investments can go down as well as up in value, so you could get back less than you invest. It’s important you understand this risk before you invest.

For some investors the first port of call is a Stocks and Shares ISA, which is designed for those looking for long-term investing options and the potential for investment growth. Each tax year (6 April to 5 April) there’s a limited amount of money you can put into an ISA, but any future gains and income are free from UK tax. You can also make withdrawals when you need to. This tax year the ISA allowance is £20,000.

Alternatively, if you’ve used up your ISA allowance, a Fund and Share Account is worth considering. It allows you to buy, sell and hold your investments in one place, with no limits on how much you can invest. It’s also designed for long-term investing, but income and gains made on investments is taxable. You can still withdraw money when you like.

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Preparing for retirement and getting to grips with your options can seem daunting. It can help to talk things through with someone.

Our straight-talking team of retirement experts will be happy to answer any questions you have, big or small, and help you review your options.

Their goal is to give you the tools and know-how you need to be ready for retirement.

They’ll talk through the main retirement options with you and provide information you’ll need to help you make your own decisions with confidence.

They can also help you run a variety of quotes for flexible and secure income options, and can point you in the direction of more tools, and investment resources to help you plan.

Our experts can’t give personal advice on what you should do. But if your situation’s a little more complicated, and you think you need professional advice, they can put you in touch with one of our financial advisers.

Call them on 0117 980 9940

WANT TO TALK THINGS THROUGH?Speak to our retirement experts

Our experts can cover:

Your retirement options

Questions on the State Pension

How to find your pensions

Ways to boost your savings

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Hargreaves LansdownOne College Square SouthAnchor Road Bristol BS1 5HL

Issued by Hargreaves Lansdown Asset Management. Authorised and regulated by the Financial Conduct Authority.

0117 980 9940www.hl.co.uk

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