Your annual pensions newsletter
Pensions Made Easy
I'm delighted to present the latest newsletter from the Independent Governance Committee, the independent body overseeing your pensions savings.
As your Independent Governance Committee, we want to help you feel good about saving for your future and help make pensions easier for you to understand.
On 3 November, we held our second virtual annual member forum and we were delighted to see over 9,000 of you joined our forum live! Last year, you told us that you wanted to find out more about how your pension works so the theme of this year’s forum was ‘Pensions Made Easy’. We were joined by Iona Bain from Young Money, who explained just that in a uniquely engaging and illuminating way. If you missed it, you can watch it here. In this newsletter, we’ve summarised the key take outs from the forum, along with answers to the main questions that we were asked on the day.
If you’d like to find out more about what the Independent Governance Committee members do, please see our Annual Report for more information.
Finally, we're always keen to hear your views and hear what's important to you. We would be grateful if you could complete our short survey here - it will take no longer than five minutes.
Dermot Courtier
Chair of the Independent Governance Committee
We'd love to hear from you
We have put together a short survey to ask for your views on the member forum, what’s most important to you when it comes to your pension and how you would like to hear from us in the future.
We’d love to hear from you. It should take no longer than five minutes to complete.
Saving into a pension
A pension is simply a way of saving towards your retirement. As the government wants to encourage people to make their own provisions for later life, pensions come with incentives that other savings products don't offer – mainly that both your pension contributions and savings are tax-efficient. This is the main reason that saving in a pension plan is a good option for most people.
In general:
- Your plan is set up for you by your employer.
- You and your employer pay in, and the government helps out in the form of tax relief.
- The money that you and your employer pay into your plan builds up your pension pot.
- Your pension pot is invested in one or more investment funds.
- The aim of an investment fund is to grow the value of your pension pot over time.
- You can decide what to do with your money, and how you take it from age 55, whether or not you’ve stopped working.
Combining your pensions into one place
If you have pension pots with previous employers, you can normally transfer them into your current plan. Keeping your retirement savings in one place could make them easier to manage, cost you less and give you greater choice, but it might not be right for everyone. There are a few things you need to consider before you decide, including:
- the charges for each plan
- whether there are any penalties for transferring
- whether there are any benefits or guarantees you might lose if you move your money
- what options are available at retirement
If you've built up any benefits in a defined benefit scheme, it is usually best to leave these where they are. To ensure that people don't lose out on these valuable pensions by mistake, the government requires anyone who wants to transfer a defined benefit valued at more than £30,000 to take financial advice.
We would always recommend taking financial advice to make sure that transferring is the right thing for you. You can find an adviser in your local area at unbiased.co.uk. Financial advisers usually charge a fee for their services, but it will be personal to you and your circumstances. If you wish to proceed with a transfer, you can contact your provider. There's more information about transferring here.
Financial advice
Lots of people can be reluctant to take financial advice because of the costs but it can make a real difference when it comes to your retirement savings. Legal & General may be able to pay adviser fees directly from your pension pot, without you having to draw on other savings. This is called a facilitated adviser charge.
There is more information about facilitated adviser charges here.
You can access free guidance about your pension options from Pension Wise if you’re over 50, there’s more information here.
Your options for taking your money
Choosing to take your money from your pension pot is one of life’s big decisions. You’ve worked hard and paid in money over the years. You’ll want to be sure you’re making the right choice so that you can make the most of your retirement.
When you take your pension is a personal decision depending on your circumstances. The later you take it, the less time you will need to rely on your retirement savings. And don’t forget you’ll get your state pension too as long as you have the required years of national insurance contributions. You can find out more about when you can take your state pension here. Currently, you can start to take your pension benefits from your Legal & General pension at age 55.
Your options
Things to consider
You can take your pension pot as cash all in one go
- 25% will usually be tax-free but the rest may be taxed as income.
- You don’t need to have stopped working to take your money, but you should think about where your income will come from when you do stop working.
- It might also affect any income-related state benefits you receive.
You can take cash from your pot in smaller sums
- The first 25% of each cash withdrawal is tax-free, the rest is taxed as income.
- If you choose this option, you may wish to spread your withdrawals over several tax years to minimise the amount of tax you pay.
- What remains in your pot is still invested providing the opportunity for it to continue to grow, although the value of investments may go down as well as up.
Get a guaranteed income (an annuity)
- You can usually take up to 25% of your pension pot as tax-free cash. Each annuity payment may be taxed as income.
- An annuity gives you a guaranteed amount of money payable for either a fixed term or for the rest of your life.
- If you have certain medical or lifestyle factors such as smoking or high blood pressure, you might qualify for better rates.
A flexible income (sometimes referred to as flexi-access drawdown)
- You can usually take up to 25% of your pension pot as tax-free cash and leave the rest invested to provide a regular income and cash lump sums too if required.
- You can vary, stop or suspend the amount you’re taking at any time.
- Your money has the chance to grow but it could go down in value too. If you take out too much or your investment funds don’t perform as well as you’d expected, you could run out of money before you die.
It’s important you shop around to find the best option for your personal circumstances. You don’t just have to choose one option or provider. It’s worth comparing what each provider can offer as you don’t have to stay with Legal & General and might get better options elsewhere.
Pension Wise is a free and impartial service backed by the government who will help you shop around and make sure that the decisions you’re making are the right ones for you. You can book an appointment once you are aged 50 or over.
Ways to plan for your future now
There’s lots you can do now to help you plan for your future. Here’s five simple things you can do today. Head over to Manage Your Account, Legal & General’s online portal to start your journey or download the Coll8 app from your app store to keep track on the move.
How much is enough?
To give you some help when it comes to looking at how much you might need to save for your retirement, there are two general 'rules of thumb' for saving enough each month to help you achieve the lifestyle you want in retirement:
- If you’re under 30 when you start making contributions, you should aim to pay 15% of your annual salary, including your employer's contributions.
- If you’re over 30 when you start making contributions, you should aim to pay half your age as a percentage of your annual salary, including your employer's contributions.
How much you save will always come down to what you can afford, but this should give you an idea of what to aim for.
Remember, the amount going into your pension isn’t just from you - it could also include a contribution from your employer and the tax relief you receive from the government. Which means that your contribution goals are easier to reach than you might think!
You should aim to start saving for your retirement as soon as you can, and your workplace pension gives you a great opportunity to do this.
The earlier you start making regular contributions, the more time your retirement savings have to grow and the better chance you have of reaching your retirement goals.
Together we can change the world
Every month you pay into your pension. But have you ever wondered what Legal & General does with your money? The simple answer is: it helps change the world for the better.
They put your money with that of all other members, then invest it in company shares (among other places) to help it grow. When the investments of millions of members come together, they become a powerful force to influence change.
That’s helped Legal & General have a positive influence on some of the world’s largest companies. With their help and encouragement, organisations like Boohoo, Nintendo and Samsung C&T have become more environmentally and socially responsible, and better governed too.
They do this because they believe that well-managed companies who take good care of the environment, their customers and their employees are more sustainable in the long term.
Find out more on their environmental, social and governance hub.
Thank you for reading this update. We hope you found it useful and that it helped to answer some of your questions. As a reminder, the link to our survey is here and we would love to hear your views.