Getting to grips with retirement planning

Getting to grips with retirement

Hello and welcome to today's presentation.

My name’s David Rickus and I'm a member of the Presentations team at Legal & General. I'm your host for today's presentation and I'm joined by my colleagues Charlotte and Colin.

Today we're going to be looking at how audience members can get to grips with their retirement planning and we'll be focusing on four key themes; Getting started with your planning, looking at the different ways in which you can take your retirement savings, seeing the full picture in terms of the different pension types that you might have and the help and support that's available to help you with your retirement planning.

Today's presentation will last for around 30 minutes. We're enabled to take questions, but we have set up a dedicated web page where you can find answers to the questions that come up most frequently in presentations similar to this one. And you'll find that at legalandgeneral.com/pensionquestions. If you have a question that relates to your individual plan, then please call our helpline.

Before I ask Charlotte and Colin to introduce themselves, just need to cover some important points. This is a general pensions education session today and doesn't represent financial advice. The information we're covering will be based on the 2023/24 tax year, the law, tax rates and any allowances may be subject to change and your investment may go up and down in value. It isn't guaranteed and you may get back less than you’ve paid in.

So over to Charlotte and Colin to introduce themselves.

Hello, everybody. I'm Charlotte and I work in the presentation team at Legal & General and I really enjoy helping people to plan for retirement, it's typically the time that people start to really engage with understanding their pension, and it can be quite a daunting task. So, it's great to tell people about the help and support that can help them to plan for the future.

Thanks, Charlotte. Hello, I'm Colin. I really enjoy making what can sometimes seem to be a complex topic, easier to understand and encouraging our audience members to take action. I think it's important that you do as much as you can to take control of your own financial future.

Okay. Thank you both. So, moving on to our first topic today, which is getting started with retirement planning. I think we would like to stress that it's important to start as early as you can and to maintain focus throughout your working life. Charlotte, what are some of the typical issues that might get in the way that might prevent audience members from getting started with their retirement planning?

I think one of the things that can be a challenge is actually getting started and knowing where it is, you should start.

So, identifying what the jobs are that you need to do at your particular stage in the journey. We do often hear from people that they don't know when they need to plan for retirement and if they're not near retirement, there's often thought that you don't actually need to do the jobs. But we hear from people that are just about to retire, that are a bit closer to it, that they wish they'd engaged with the process a bit earlier on to give themselves plenty of time to think about the things that they need to do and perhaps even changes that they need to make to allow them to get there. I think it's worth also mentioning the retirement's changed and that can confuse people sometimes because it used to be very much you used to finish work, had a party, that was it you were retired. Whereas now, of course, lots of people will work partly through their retirement and there's often some confusion around taking benefits while still working and how those two things work together.

Okay. Thank you, Charlotte. You touched on audience members not knowing necessarily where to start.

So, could you just look at some of the things that audience members could do to try and make a start with their retirement planning?

Yeah, sure. So, it's probably a really good idea to start asking yourself a few key questions like how are you going to wind down? So, will that be a slow transition into retirement? And if so, what are you going to do with the time that then becomes available? So, start picturing your future and it is important to plan for your wellbeing and retirement as well as your finances. If you are a very social person, for example, think about planning in to connect with others. That can be really important. You'll also need to start asking yourself about your personal responsibilities in your retirement years, so that could be caring for family member, for example. Or it could be around areas like debt. So, continuing to pay a mortgage for some years into retirement, which could impact on your budget.

Okay. Thank you, Charlotte. So having thought about the type of lifestyle our members would like in retirement, what can they do to try and work out what that lifestyle might cost them?

Well helpfully, there's been some really useful guidance conducted by the Pensions and Lifetime Savings Association, who developed the Retirement Living Standards to do just that. So it gives people an idea of what the cost of goods and services may cost in retirement, and also identifies different types of lifestyles to give people an idea of what their living costs might be and a picture of the future. Of course, we are all individuals and many of us will want to do a budget for ourselves and think about our own individual needs. And we provide our members with tools that they can access from Manager Your Account, that can help them to do just that. There's also tools, as well as helping you to think about your total annual income you'll need in retirement, that will help you to arrive at whether or not you're on track for having that lifestyle in your retirement.

Okay. Thank you, Charlotte. So, having identified the sort of income they might need in retirement, where might that income actually come from?

Well, it's quite likely David that the income in retirement for most of our audience members will come from a number of different sources. So, let's start with pension related income. Our audience members will have a pension with Legal and General, so they'll have an income from this source. They may also have similar pensions with previous employers that will give them an income in retirement, they might also have taken out a personal pension at some stage, which may also provide them with an income.

Some of our audience members may also have a defined benefit pension; a final salary scheme that will provide them with an income in retirement as well. There are, of course, depending on personal circumstances, other sources of income like savings or investments or property and of course, often people forget that there is state pension benefits as well. So, there are benefits that we could potentially access in retirement if our income falls short. So, for example, pension credit is a great example of this. And there is the state pension going back to pension income that we’ll all be entitled to receive at some stage in the future.

Okay. Thank you, Charlotte. Moving on to our second topic for today, which is looking at the different ways in which audience members can take money from their pension. Colin, what are the things that can sometimes make it difficult for members to understand the different ways that are available to them?

A couple of things come to my mind there David, I think the first one is that there's now a range of different options as to how you take your money. And in my experience, talking to our customers, there's still some misunderstanding about the sort of nuances and differences between those different options. I think the second thing and this is probably the more important thing, is relating those options to your own personal circumstances. So, it's all well and good understanding the options, but what actually is the best and right option for the individual?

Okay. Thank you Colin. So maybe we could start the session by looking at how and when members can start to take money from their retirement savings plan.

Yes, certainly. So, at the moment, the minimum age you can take benefits from your Legal & General plan is age 55.

You might be able to access them sooner if it's due to serious ill health. And actually the government's increasing that minimum retirement age for workplace pensions to age 57 in April 2028. So that may have an impact on some of our audience members. You're able to take a quarter of your retirement savings as a tax free amount. One of the tax benefits of saving and the remainder is subject to income tax. So, it's added to your other income and you would pay tax at the appropriate tax rate. And very broadly, there are three different ways you can take your pension. You can take your pension pot as cash and you can use it to buy something called an annuity or you can keep your pension pot invested and go into something called drawdown.

Okay. Thank you, Colin. The three options that you just mentioned, I think it might be helpful for our audience members if you could look at each one, possibly in a little bit more detail and just talk about the things they maybe ought to be aware of.

Certainly, David, so let's start with cash. You're allowed to take your retirement savings as a cash sum or as a series of cash sums. When you do that, a quarter of the amount you take is tax free and the remainder is taxable. Now, one of the things to be aware of with cash is if you have a fairly sizeable pension pot and you decide to take it as a single cash sum all in one go, then potentially you pay a lot of income tax because three quarters of the amount would be added to your income for tax purposes. So, people sometimes take cash as a series of smaller amounts and that can sometimes help mitigate perhaps some of the tax that you might pay if you do take some of your pot as cash, any money that's left behind is still invested and of course, the value of investments could fall as well as rise. So, let's move on to the other two options the annuity and the drawdown. With both of those options, you can take a quarter of your savings pot as tax free cash, and the money that's left over is then used to provide you with income.

So, let's start with the annuity. With the annuity, you use your retirement savings to effectively buy income. So, you pass your money over to an annuity provider in exchange they pay you a regular guaranteed known level of income and that could be paid for the rest of your life, if you buy a lifetime annuity or it could be paid for a fixed term if you buy a fixed period annuity. There are different types of annuities available. It is important to shop around and get yourself the best breaks that you can achieve in the market. If you're a smoker or you have certain medical conditions, you may also benefit from a medically enhanced annuity. So definitely worth shopping around.

The difference with drawdown is that rather than handing your money over and buying an annuity, you leave your money invested in much the same way as it's invested as you build up your retirement savings across your working life and you can then take an income from that invested pot. So, you might decide that you need a regular income a bit like your salary. So you might decide on, for example, a monthly amount of money that you just draw. You might decide that you're only going to draw down as or when you need money, perhaps for a specific purpose, so refurbish a kitchen or buy a car, whatever it might be. You might actually decide that you just want to take your tax free lump sum and leave the remainder invested and draw something from it at a later stage. But with both the annuity and the draw down, remember that once you've had your tax free cash, the remainder is taxable. And similarly with the cash, only 25% is tax free.

Just talk about some of the pros and cons at very high level. One of the advantages, I suppose, of annuities is that they give you a guaranteed known level of income. So essentially, you know what you're going to receive and how long you're going to receive that income for. Perhaps one of the disadvantages of annuities is they're not particularly flexible. So, once you've bought your annuity, normally speaking, you’re fixed with the amount of income you're going to receive and you can't turn it into something else.

Normally speaking. One of the advantages of drawdown of course, is that you do have some flexibility because you have control over how much income you draw from your drawdown pot and you also have control over where that money is invested. But of course, you do need to bear in mind that if you draw the money very quickly, or your investments don't perform as well as you expect, there is a risk with drawdown that you could run out of money before you die.

Okay. Thank you, Colin. So, we've talked about tax a lot there. It's often a topic that's misunderstood and can be confusing. So, could you just at a high level, just explain how retirement income is taxed, please?

Certainly David. So, Charlotte’s already explained that our sources of income in retirement can come from different places. They can come from the government. Once we reach our state pension age, something will come from your Legal & General pension for our audience but you may have other pensions, other savings and investments and other sources of income and the way that income tax works is that we all have a personal income tax allowance, and that's the amount of money that we can earn before we pay income tax.

So, in a sense, that amount of income is almost tax free. But once that money exceeds that tax allowance, we then pay tax at the appropriate tax rate. So the calculation really is just adding up all your income from the various sources, less your personal income tax allowance, and that's your taxable income and you pay tax at the appropriate tax rate.

Another thing just to mention perhaps, is a special rule called the money purchase annual allowance, and this will only affect you if you access your pension pot in certain ways and you carry on saving into the pension, which people do more and more nowadays because people do carry on working and still access, pension benefits.

So, if you take your pot as cash or if you go into drawdown and you actually draw an income, there is then a restriction on the total amount you can save into a pension before you incur a tax charge, it's called the money purchase annual allowance. It's £10,000 for the current tax year, it actually increased from the previous tax year.

Just something to be aware of if you're thinking of drawing your benefits. Of course, we will highlight that in our retirement paperwork.

Charlotte's got lots of experience of delivering retirement presentations. So, Charlotte, what sort of questions are we typically getting asked.

So, I guess a question that we see quite a lot is around how you can pass your money onto your loved ones after you've started to take your benefits. So, lots of our audience will understand that they can nominate their beneficiaries and that money can be passed to their loved ones. But there's often confusion around what happens, as you've said, Colin with those different options of how you take your money at retirement. So, to keep things quite straightforward, if there is money left in your pension, after you've started to access the benefit. So, using drawdown, for example, or the series of cash lump sums, then you can pass that money onto your loved ones and nominate those beneficiaries. If you've bought an annuity product, then it depends on the terms of the annuity that you have bought and the options that you as an individual have decided to include as to whether or not that money can be passed to your loved ones.

If you've taken all the money out as cash, if you've still got money left when you die, that would be passed on as per your estate. There is often some confusion around when you can access your pension. And I know you've covered the age, you can access the Legal & General pension. We do often hear that retirees and people planning for retirement think that they need to wait till they get to their state pension age before they are able to access it. And the state pension age of eligibility is different. That's currently between age 66 and 68. So just to be clear, you can access them at different times.

We do often hear people ask questions around their investments, so asking questions like, well will my investments automatically be targeting, either the way that I plan to take the income or the age that I'm planning to retire. And again, to keep things quite simple, that really does depend on the options that you have chosen or the scheme default. So just for reference, the scheme default investment will be the investment option that you will automatically be invested in if you haven't made an active choice. So yes, you will need to review your investments to check how that default option works or how the option works that you've chosen yourself to make sure that it is aligned with your plans.

Thanks Charlotte. Thank you both. Moving on to our third topic today, which is seeing the full picture of all the pensions that our audience members may have. Charlotte, what can make it difficult for our audience members to understand what they've got in terms of their pension provision?

Well, I think as we've heard today, it can be quite confusing to understand those different types of pensions and to understand how they're going to deliver you in, an income in retirement but also how much. So, I think that does rather confuse people with how they link together and work together.

Okay, great. Well, let's start by trying to clear up some of that confusion and maybe you could just outline what the different types of pensions are and how they work.

Yeah, sure. So, our audience members today will have a Legal & General pension scheme, which is a defined contribution pension scheme. And what you get back from these types of pensions depends on how much you and your employer has paid into the pension, how well the investments perform, the charges that are deducted to manage the pension and also those options that you covered, Colin, of how you come to take your money at retirement. If you've got other DC pensions, they'll work in a similar way.

Some of our audience members will also have defined benefit pensions, those final salary schemes, and they are very different. What they do is give you a guaranteed income for life. So, it's important to understand the amount of money that you will receive from that.

The state pension depends on your national insurance record. So how much money you have paid in in terms of national insurance credits and the rules are that you need a minimum of ten years’ worth of credits to be entitled to the state pension and you need 35 years to get the full amount of state pension.

Okay. Thank you, Charlotte. So, it's likely then that our audience members may get their retirement income from a number of different sources. How can they find out more about each of the different pensions that they have?

Sure. So, starting with the state pension, members can get a forecast from the government by contacting the Future Pension Centre or by going to where they can find out what they will receive and when. Of course, your Legal & General pension you can find out about by visiting Manage Your Account and if you have other similar pensions, you can reach out to the providers, the administrators or the scheme trustees and get up to date statements for what the value of those benefits are. Similarly, if you have a defined benefit pension, you can do the same, you can reach out. And really important that you do let all your providers of your pensions know wherever it is you are currently living so that they can communicate with you in that run up to retirement with that important paperwork.

Okay. Thank you, Charlotte. So, if any of our audience members are thinking about transferring a pension to Legal & General with one of their other ones, why would they potentially want to do this and what are the things that they ought to think about before doing so?

While people may transfer a pension for a number of different reasons and it could be as simple as making them easier to manage, so having them all in one place can make the administration easy. It can also be about improving their choices, so the options available at retirement, for example, or the investment options, or it could be because they want to reduce charges and the scheme that they’re moving to might have lower charges. So, there will be a need to review the detail of any pensions you hold. That’s really important and some pensions will require you to take financial advice because of the nature of the guaranteed benefits that are built in. And you should consider taking financial advice anyway, as that can help to get a recommendation for what’s right for you and your personal circumstances. So take a look at any pensions you hold, look at the charging structure, the options available at retirement, the investment options, and really just have a look and see which is the better deal for you.

Now I know, Colin, that you've got some experience of transferring pensions and you covered in the last session in detail for people what the processes are here at Legal & General. For the benefit of the audience today that might not have seen that session could you just cover off a recap of what the transfer process is.

Yes, certainly. So, a really good place to start is within your online account, our Manage Your Account portal and if you go into Manage Your Account, you will be able to request a transfer in pack. And so that will include a guide to the things that you should think about before you transfer pensions, some of which you've already mentioned, and an authorisation form, if you do decide that you wish to proceed with the transfer.

But many of our audience members will also have access to a service called My Future Now and My Future Now is a pension tracing and consolidation service and there's no cost to members, so we don't charge for the service. And what My Future Now can do, is it can firstly help you find any lost pensions that you've lost contact with, which is important, as you mention. And you basically give some information about what you know about your pensions and the My Future Now team will go away and investigate, help you trace any that you've lost, and they'll then summarise your pensions on an online dashboard and give you all the information that you need before you make a decision as to whether or not you want to proceed with a transfer.

So if, for example, it's the sort of policy where you need to take financial advice before you’d be able to transfer it, that would be sort of highlighted to you. You can then decide how you want to proceed and of course you’re under no obligation to transfer and you can still take financial advice. And once you've made a decision, you can give an online instruction, if you decide that you wish to transfer and please be aware that once that instruction has been given, it can take sometimes a few weeks just for the money to move from the sort of existing provider across into your Legal & General account. But once that's done, you'll be able to see the value of the pot that's transferred on your online account.

That's great. Thanks, Colin. Okay. Thank you both. And moving on to our final topic today, which is looking at the help and support that's available to assist members with their retirement planning. Colin, what are some of the things that might prevent audience members being able to access the help and support that's available?

Yeah, I suppose one of the things is, just an awareness of the support that's out there and there's actually a lot of free support to help you and we can talk about that in a bit more detail. I think the other thing that I come across a lot is people not knowing where to find a financial adviser if they need financial advice and also not really knowing how much a financial adviser would charge for their services. So, it's just that general awareness really of what's out there and whether it's free or what it's going to cost.

Okay. Thank you, Colin. And on the subject of the free guidance, could you just explain in a little bit more detail what this is, how it works and how our audience members might be able to access it?

Certainly David. So, the good news is that there is a free, impartial help and guidance service which is provided by Pension Wise, something that the government set up and Pension Wise can help you understand the different options that we talked about, so cash, annuity, draw down and they can sort of guide you through those options.

They can't give financial advice, but if you are aged 50 or over, you can book an appointment with a Pension Wise specialist and they will give you sort of 60 minutes of time just talking you through your options and there's no charge for that. So, I very much encourage people to go and take advantage of that. That service is available through the MoneyHelper website. So, you might want to start there, go through to the Pension Wise website and it will tell you how you can book either a face to face or a telephone appointment.

Okay, Thank you, Colin. And if any of our audience members want or need to get actual financial advice, what can they do?

Okay. Yeah. So, there is some further information on the Money Helper website around choosing financial advisers, but at Legal & General we signpost a website called unbiased.co.uk and Unbiased is a website where you can essentially source a local financial adviser so you can input your postcode and it’ll come up with some suggested local advisers. And of course, please be aware that advisers may and do charge for their services.

But some of our audience members will also have access to a service called Legal & General Financial Advice. And if you're aged 45 or over, you have a pot size of £20,000 or more and you’re UK resident our advisers can help you understand things like the different types of pensions that you have, so for example, the state pension and any defined contribution pensions like your Legal & General plan, any defined benefit pensions similar to the ones that Charlotte’s already mentioned. They can help you understand the different options for taking benefits at retirement and the tax consequences of those options. They can help you understand the tax relief allowances and how to make best advantage of the reliefs and allowances. And they can also help you structure your investments as well to suit your own attitude to risk, personal circumstances and goals.

And if you’re seriously unwell, the minimum pot size reduces, so if your pot size is £10,000 or more and it's a seriously ill health situation, they may also be able to help you there. So, if that service is available to the audience and they want to find out a little bit more, they might like to contact our help line.

Okay, Thank you. In addition to the guidance and the advice that's available, Legal & General also provides quite a lot of support in other areas. So, could you possibly just outline some of those resources and how audience members can access them?

Yeah, certainly. So, three resources come straight into my mind. We do have a Financial Wellbeing Hub, it's called Go and Live. Lots of information on that hub around retirement planning, but also on sort of wider financial wellbeing as well, so on a day to day money management and supporting mental good health as well. So a lot of our audience members will have access to that service. We know the planning for retirement can be complicated and in conjunction with the Open University, we've created two free online courses which take around 4 hours to complete.

There's a midlife MOT course, that can just help you in your mid-working years, take a financial stocktake and I think it also deals with personal wellbeing as well, so you can get your finances and your wellbeing.

And we also have a retirement planning made easy course that sets out a series of stepping stones to a more financially secure retirement. So that might help you if you're just trying to get everything in order and start thinking about your plan for retirement. And then finally, of course, the really important one is that we offer the online portal, Manage Your Account, and lots of tools and resources are available within your online accounts, including our retirement planning tools, which can help you see if you're on track for the retirement that you're aiming for.

Okay. Thank you, Colin. Well, that just about brings us to the end of today's presentation. We've covered quite a lot of ground, I think, so it might be helpful if our presenters could possibly highlight a couple of key takeaways for our audience members to focus on. Colin, if I can start with you, what would you want our audience members to particularly take away from today's presentation?

Yeah, I think two things. I would just reiterate that there is lots of support out there, so Legal & General offer support to our customers, you've got the free impartial guidance by Pension Wise, you might want to take financial advice, of course they'll normally charge for that service. And so don't be afraid to go and investigate some of that support. You're not on your own, basically. I think, the other thing I often say this in presentations is that I would encourage everyone who's watched the presentation today to just take one action because I think we can spend lots of time talking about pensions, but sometimes we have to do something.

Okay, Thank you Colin. And Charlotte, the same question to you.

So I guess I'd say really look at what jobs you need to do and that might be different for different members of the audience. So use Go and Live, that can help you to identify if you're more than ten years away from retiring, what those jobs may be that you need to do and the actions you need to take, if you're less than ten years to go until you retire, there'll be a different set of actions that will sit within the Go and Retire, section. And sometimes you just don't know what you don't know. So it can be helpful to listen to things like our podcast series. The ReWirement Podcasts can help you here, you're not just going to hear from experts, but you'll also hear from other retirement savers, people that are in the same situation as you potentially. And it might help to just hear their thoughts and identify any new actions that you need to take.

Okay. Thank you, Charlotte. Well, all that remains is for me to thank our audience for their time today. All of the websites and links and resources that we've discussed are available via our dedicated web page I'd just like to make the audience aware that we do continually try and improve these sessions, and if you're able to do so, there's a feedback form, a quick and easy to complete one which is available on the Bright Talk platform, if you'd like to take a few moments to give us some feedback on today's presentation. We hope you've found this to be a helpful and informative session and we look forward to seeing you again in the not too distant future.

Bye for now.