ahead - Willis Towers Watson · 2018-11-19 · LifeSight Planning for Retirement 7. Choosing the...

ahead

Your options at retirement

You’re approaching an important milestone in your life. Here’s your opportunity to think about what matters to you in your retirement, as your actions now can have a big effect on your life after work. You have some choices to make, and it’s time to consider what is best for you.

This Guide will help you to do just that. We remind you of the choices you have and point out the factors you need to consider.

You have flexibility over how you can access your savings in LifeSight. Once you have decided which option or options suit you best, we’ll make it happen. And, along the way, we’ll keep in touch so you will always know what you need to do next.

2 LifeSight Planning for Retirement

What if…?

Retirement may still feel some way off and it can be hard to make a decision now about how you may want to access your savings in 10 to 15 years’ time. LifeSight gives you the online tools to help you consider the different scenarios and understand what each of the retirement options mean for you, until you find what you are most comfortable with.

LifeSight ageOmeter – explore what the different options mean to your predicted LifeSight Age, which is the age at which you may be able to afford to retire (see page 6). You can see the difference that the drawdown, annuity and cash retirement options make to your predicted LifeSight Age, as well as the impact of the higher, medium and lower-risk investment choices.

Spending Planner – this tool gives you a picture of your overall financial position. The more information you add about other sources of incomes you may have in retirement (other than LifeSight), the better the tool can estimate what each of the retirement options means for you and your savings in each year of your retirement.

It’s important that you understand your options

before making your choices. These two tools can help

you plan and decide what’s best for you.

Spending Planner

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LifeSight Planning for Retirement 3

Before we get started…

This document is here to help you prepare for your retirement, which may mean saving as much as possible, or it may mean retiring a little bit earlier. Either way, there are three steps you should consider to help you plan for your future.

Decide when

To do this you need to think about how much you have saved, and what you may need in retirement.

Read pages 6–9 to find out more about when you may be able to start taking your savings.

Choose how

It’s important to understand that the way you take your savings at retirement is linked to your investment options.

By the time you reach retirement, you can invest your savings in a way that aligns with your chosen retirement option.

Read pages 10-13 for more details about your options.

Invest

It’s helpful to recognise the relationship between investment risk and return. Choosing a higher risk investment option may give your savings the biggest potential to grow, but it also means a greater chance of losing money in poor market conditions. Lower risk investment options may deliver less growth but offer more certainty around what you will get when you retire.

Read pages 14–16 for more information about investment options.

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Decide when

You can access your pension savings after you’ve reached the legal minimum pension age – which is currently 55. The right age for you to start to access your savings will depend on your personal circumstances and retirement plans.

LifeSight Age

Your predicted LifeSight Age is the estimated age at which you may be able to afford to stop working, and is based on what you’ve told us about your financial situation and the choices you’ve made about your contribution rates and investments.

You need to ensure that your predicted LifeSight Age is up to date. To do this, visit the LifeSight ageOmeter and add in any additional savings you have outside of LifeSight and update how much you think you may need in the future. Otherwise, our calculations may not reflect your personal circumstances.

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Use the LifeSight ageOmeter to model the effect of the following three decisions on your predicted LifeSight Age:

ContributionsYou can boost the value of your LifeSight savings through additional contributions before you start accessing your benefits. Use Step 2 of the ageOmeter to see the difference that contributions can make to when you can retire.

Remember that pension contributions are eligible for tax relief (up to certain limits). They may also attract additional contributions from your employer. See the Plan Guide for more details – available in your online LifeSight Bookshelf.

Once you have left your employer, you may not be able to contribute to LifeSight. You may, however, be able to transfer other pension savings into LifeSight to take advantage of the investment options available.

InvestmentsThe way you invest your savings affects how your money could grow. This in turn affects your predicted LifeSight Age.

Step 3 of the ageOmeter will help you to see how your attitude to risk may affect the value of your savings.

Retirement choicesWhen investing your pension savings, you should also take into account how you plan to access them when you retire.

Step 4 of the ageOmeter shows you how different choices affect your predicted LifeSight Age. Read more about your options in the next section.

The LifeSight ageOmeter also helps you to understand the likelihood of retiring at your LifeSight Age. Because your LifeSight Age is an estimate, it comes with an accompanying range of possible ages at which you may be able to retire. This range shows you the impact that investment risk has on your predicted LifeSight Age.

When you choose the lower investment risk option, you’ll see that the range of ages becomes narrower as your savings are less likely to experience any dramatic rises or falls – and therefore it’s easier to predict your LifeSight Age. When you choose the higher investment risk option, the range of ages becomes wider as your savings would be more exposed to market conditions and therefore could fluctuate greatly, making it harder to predict your LifeSight Age.


Choosing the right age

Many employers set a Normal Retirement Age or pension age for

retirement savings. You can find out yours by checking your Plan Guide.

This age is used as a benchmark for designing certain elements of the Plan – your investment options for example. If the default age set by your employer isn’t right for you, you should set your

own Target Retirement Age.

Some of the investment options make automatic changes to your investment holdings as you

approach the set retirement age. This is why it is important that you make sure that the default retirement age set by your employer, or the Target Retirement Age you have set yourself, is right for you and is based on when you think you’ll want to start taking your savings:

• If the age your LifeSight Account is targeting is too young, your investments will move into lower risk funds too early and you may lose out on potential growth

• If the age your LifeSight Account is targeting is too old, your investments will stay invested in higher risk funds for longer, meaning your savings could be exposed to any downturn in market conditions


Here is a recap of the different ages that you need to understand when thinking about your retirement options:

Age How can I change it?

Normal Retirement Age (NRA)

This is an age that may be set by your employer as a starting point, which is used to inform how certain LifeSight features work.

This age can be changed through your LifeSight Account. If you do change it, it becomes your Target Retirement Age.

Target Retirement Age (TRA)

An age, specified by you, that you are aiming to retire at. This replaces the Normal Retirement Age set by your employer and, if you are in the Lifecycle strategies, it determines how your investments work as you approach retirement.

You can change this at any time on your LifeSight Account.

LifeSight Age

The age at which you may be able to afford to retire, based on the information that LifeSight knows about you. You can model different scenarios to find a predicted LifeSight Age you are comfortable with, using the LifeSight ageOmeter.

If your predicted LifeSight Age reflects your personal circumstances and retirement plans and you are comfortable with this, you can update your Target Retirement Age to make it the same as your LifeSight Age.

State Pension Age

The age at which you will be eligible to start receiving your State Pension payments. The Government will determine when you are eligible for these payments.

You can find out your State Pension Age at www.gov.uk/calculate-state-pension


Based on what you may choose to do with your LifeSight Account at retirement, you should now start to think about how your LifeSight Account is invested, to be sure your investments are tailored as appropriately as they can be to your future options. Read more on pages 14-16.

Choose how

When you access your pension savings, you have three options to choose from: Drawdown, Annuity or Cash. You can choose one, or a combination, of these options.

You take one-off or regular withdrawals from your savings as and when you need them. The rest of your savings remain invested.

You can either continue making withdrawals until you have used all of your savings, or use some or all of the remaining amount to buy an annuity at any time.

A contract with an insurance company that, in exchange for some or all of the value of your LifeSight Account, provides you with a regular income for a guaranteed period, often the rest of your life.

The amount of income you receive depends on factors like the amount of your savings, the type of income you buy, your age and if you want to provide for dependants on your death.

Please note: depending on your lifestyle and medical conditions (both past and present), you may be eligible for an enhanced annuity income.

You withdraw all of your LifeSight savings in a single lump sum.

Please note: taking all of your savings in one lump sum may mean that your tax bracket changes and the rate you pay may increase.

Drawdown Annuity Cash

Be aware

Whichever retirement option you pick, once you start accessing your benefits, you may be subject to a reduced Annual Allowance. This would mean that in future, you would only be able to contribute £4,000 in a tax year to another pension scheme without incurring tax charges on your contributions. For more information on the Annual and Lifetime Allowances, see the Plan Guide, available on the online LifeSight Bookshelf.


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Tax factsYou can normally take up to 25% of your savings as tax-free cash.

This can be taken as a single lump sum, or in stages as you withdraw your savings.

After your tax-free cash allowance, any cash you withdraw is treated as earnings and taxed at your personal rate of income tax.

Drawdown

AdvantagesIt is really flexible – you keep your savings invested and withdraw cash or a regular income as and when you need to.

You are in control to invest your savings in line with your personal circumstances, with the potential to increase their value.

If you die before age 75, any ‘undrawn’ funds could pass directly to your chosen beneficiaries, tax free.

DisadvantagesYou could live longer than you expected and not have enough savings to last the whole of your life. It is up to you to manage this risk effectively.

You need to be comfortable making investment decisions and monitoring these into and beyond retirement.

Taking cash withdrawals may have implications for people who may be entitled to means-tested benefits.

What happens to my savings? You keep your savings invested in LifeSight while you withdraw your chosen amounts. Alternatively, you can choose to transfer your savings to another drawdown arrangement and your LifeSight Account will be closed.

How much does it cost?You pay an Annual Management Fee, which varies depending on the investment funds you have selected, to cover the cost of running your drawdown account. This fee is taken automatically from the value of your account every month.

Remember: investments may fall as well as rise. Any reductions in the value of your LifeSight Account will impact on how much money you have to live on in retirement.



You need to do this before or at the same time as buying the annuity.

After your tax-free cash allowance, any income from your annuity is treated as earnings and taxed at your personal rate of income tax.

Annuity

AdvantagesYou have a regular, secured income which will continue for a guaranteed period of time, typically as long as you live.

You can shop around between different annuity providers to get the right annuity for you – or HUB Financial Solutions (an annuity broker and financial adviser firm) can do this on your behalf. More details will be sent to you as you approach your Target Retirement Age.

If you expect a long retirement, then this option may offer good value for your savings and the security of a lifetime income.

DisadvantagesIt stops being paid when you die, or earlier if it was a temporary annuity. Annuities may also provide a spouse’s/dependant’s annuity after your death.

If you don’t expect to have a long retirement, you will need to shop around for an enhanced annuity rate, otherwise this option may not offer you the best value for your savings.

An annuity is currently irreversible. Therefore, you must be confident that this option is the right choice for you.

What happens to my savings? You transfer your savings out of LifeSight to an annuity provider and your LifeSight Account will be closed.

How much does it cost?The costs associated with buying an annuity vary depending on the service you use. You can use the HUB Financial Solutions service associated with LifeSight for a fee. You can call HUB’s free Helpdesk on 0345 863 0495 without any commitment to using further services. Alternatively, you can shop around yourself, or you can use a financial adviser or broker to help you find the best option. The costs and services associated with buying an annuity would be explained to you by the provider, adviser or HUB Financial Solutions as appropriate at the time. LifeSight does not charge you a fee when you buy an annuity.


Cash

AdvantagesYour savings are paid to you as cash (after tax) so you are then in complete control of how you spend or save your money.

Any money you do not spend would likely form part of your estate on your death, so you could pass it to your chosen beneficiaries via your Will (if you have one) but this may be subject to inheritance tax.

DisadvantagesAs you have to pay tax on approximately 75% of your savings, when they are withdrawn from LifeSight, you may face a steep one-off tax charge.

Taking the whole sum as cash has risks, as you have no security of income once all of your savings are spent.

You need to ensure you have enough savings to meet your retirement needs. If you spend too much during the early years, if your investments don’t perform well or if you live longer than expected, you may run out of savings.

Taking cash withdrawals may have implications for people who may be entitled to means-tested benefits.

What happens to my savings? A one-off cash payment will be made to you from your savings. If this payment means you have no savings left in your LifeSight Account, your LifeSight Account will be closed.

How much does it cost?There is no additional charge for cashing out your entire LifeSight Account.


To help manage your tax charges, you can withdraw this over several tax years.


Invest

Before you make your investment decision, you should think about the level of investment risk that you are comfortable taking. Use the LifeSight ageOmeter or the Spending Planner to experiment and understand how risk and return can affect the level of savings you could have when you retire.

If you have not chosen or been informed otherwise, your LifeSight Account will be automatically invested in the default investment option, as outlined in your Investment Guide.

You should consider whether this option is right for your personal circumstances and retirement plans.


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Lifecycle For many people, choosing an investment option to meet their retirement ambitions can seem a little daunting. We’ve made this easier by designing nine Lifecycle investment options that are managed on your behalf – now, and until you retire.

Each of these options is based on the relationship between two things:

• the level of risk you feel comfortable taking, and

• how you would like to access your money when you retire

Once you choose one of these nine options, we will manage your investments for you, including moving them to funds that are best suited to your preferred retirement option as you get closer to retirement. All you’ll need to do is regularly review your LifeSight Account to make sure that it still matches your personal circumstances.

Not sure where to start? Don’t forget, the LifeSight ageOmeter or the Spending Planner can help you work out which of the Lifecycle options is right for you.

Higher Risk Drawdown

Medium Risk Drawdown

Lower Risk Drawdown

Higher Risk Annuity

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How you invest your LifeSight Account should align with how you plan to access your pension savings.


If you want even more precision, or involvement, with your investments then you may want to consider the Freechoice options.

FreechoiceFreechoice gives you maximum control over your investments, but this does mean that you will need to check in regularly to make sure that your investments are on track. You simply choose one or more of the individual funds available.

There is no automatic switching of investments as you get closer to your Target Retirement Age, so you would need to manage this yourself. This means you need to think carefully about the funds that are right for you, monitor your investments over time, and switch funds as your circumstances and plans change.

Read more about your investment options in your Investment Guide. This Guide, the

fund factsheets and the Charges Sheet are all available in the online LifeSight Bookshelf.


Transferring other savingsYou can transfer other defined contribution (DC) pension savings into LifeSight to help you manage your savings in one place and take advantage of the investment options available. You can request a ‘Transfer-in’ form from the LifeSight Team.


Annual and Lifetime AllowanceThere is a limit to the amount of pension savings you can save annually, and over the course of your lifetime, without incurring a tax charge. For more information on these limits, see the Plan Guide – available in the online LifeSight Bookshelf.


Other information

Guidance and support

From age 55From age 55, we encourage you to access the free and impartial guidance provided by the Government.

This service – called Pension Wise – is available to help you understand the different options you have when accessing your LifeSight pension savings. You’ll receive more information as you get closer to your Target Retirement Age.

The guidance is likely to last around 45 minutes – you will be given a list of questions to prepare and documents to gather in advance. It will be provided:

• Over-the-phone or on the internet by The Pensions Advisory Service, and;

• In person by the Citizens Advice Bureau.

Visit www.pensionwise.gov.uk for more information. To book an appointment between 8am and 10pm, Monday to Sunday:

• Call 0800 138 3944 from the UK

• Call +44 203 733 3495 from outside the UK

Although Pension Wise will help you to consider your options, they will not be able to advise you on which of the different options is right for you. To help with this decision, we encourage you to seek additional guidance or independent advice. See page 20 for details.

Six months before your Target Retirement AgeLifeSight works with HUB Financial Solutions to provide a comprehensive service to help you understand and make your future retirement decisions.

HUB Financial Solutions will answer your questions, provide you with guidance and advise which retirement option might be right for you – whether that’s using LifeSight as your income drawdown provider or finding the best annuity quote for your personal circumstances.

LifeSight will meet the cost of a Helpdesk service and also that of a recommendation pack under the retirement advice service. You will need to cover the cost of any subsequent conversations, including more complex advice or annuity broking costs. Any costs and full details of the service will be outlined to you by HUB Financial Solutions at the time. You can call HUB’s free Helpdesk on 0345 863 0495.


Financial adviceAlthough LifeSight offers you lots of tools and resources to help you through your savings journey, neither the LifeSight Trustees nor the LifeSight support team can give you investment or financial advice. The following links can be used for further help:

www.pensionwise.gov.ukA free and impartial government service that helps you understand the options for your pension savings.

www.unbiased.co.ukFind impartial financial advisers in your local area to discuss your options.

Contact information

All the information you are likely to need about your benefits and planning for retirement can be found when you log on to your LifeSight Account.

This includes a range of planning tools including the LifeSight ageOmeter and Spending Planner. If you cannot find what you are looking for, contact the LifeSight Team.


Contact LifeSight

Write to:

The LifeSight Team Willis Towers Watson PO Box 758 Redhill Surrey RH1 9GT

Email: [email protected]


Your ‘to do’ list:

• Use the LifeSight ageOmeter and

Spending Planner to understand your options

Choose when you would like to retire by

selecting a Target Retirement Age

Let us know how you plan to take your money

at retirement

Make sure that you are invested in a way that

aligns with your retirement plans

Look out for more details about your options

as you approach your Target Retirement Age

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ahead - Willis Towers Watson · 2018-11-19 · LifeSight Planning for Retirement 7. Choosing the...

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