pre-retirement guide · 3 protecting the savings in your retirement account during the next six...

EXECUTIVE OVERVIEWUsing this guide Your pre-retirement checklist

2-5

PLANNING YOUR RETIREMENT INCOMEAssess your income needs in retirementReview your retirement savingsTake action if you have a shortfall Take advice

6-8

RETIREMENT INCOME OPTIONS1. Summary of annuities 2. Cash3. Income drawdownComparing your options at retirement

9-17

ADDITIONAL FLEXIBILITY AT RETIREMENTFlexible retirementPartial transfersAnnual Allowance

18-19

PROTECTING YOUR RETIREMENT ACCOUNT Lifestyle glidepath options

20-22

USEFUL INFORMATION 23

Pre-Retirement GuideApril 2015

Your Pre-Retirement GuideThis guide is for members of the Hewlett-Packard Investment Scheme (the Scheme). We have sent you this guide because you are now six years from your Selected Retirement Date (SRD). Now is a good time to:

1 Start planning for your retirement,

2 Think about the options that are available to you; and

3 Understand the actions you need to take now to secure your income in retirement.

Hewlett-Packard Investment Scheme Hewlett-Packard Limited Retirement Benefits Plan

2 Retirement Guide

Executive overviewHaving taken the decision to join the Scheme, the time has come to make plans for your retirement. Six years may appear to be quite far away but the decisions you make now will directly impact how much income you will receive when you actually retire. This guide has been designed to help you think about:

1 Planning how much income you will need in retirement

2 The income options available at retirement

3 Protecting the savings in your retirement account during the next six years

page 7

page 9

page 20

Planning your retirement incomeThe purpose of your retirement account is to give you an income during your retirement. It may be some time since you have reviewed your retirement account and checked that it is on target to meet your desired income. Page 6 of this guide outlines some of the things you might want to consider when planning your retirement. If you find you’re behind schedule on your targeted pension, page 18 gives you some options to consider such as phasing your retirement. Your latest benefit statement will provide information on how much you might receive from your retirement account.

Your retirement income optionsWhen you retire, generally you will have a number of ways that you can take your retirement savings. These options include:

• An income for life (annuity): taking up to 25% of your retirement account (if you wish) as tax-free cash and use the balance to buy a guaranteed income for the rest of your life (known as an annuity).

• Single cash lump sum: taking all of your retirement account as a single cash lump sum, 25% of which will be tax free, with the remainder taxed at your marginal rate. This option is available through the Scheme.

• Multiple cash lump sums: taking all of your retirement account in multiple instalments of cash over a number of payments and/or years. With each cash withdrawal, 25% will be tax free, with the remainder taxed at your marginal rate. This option is currently not available through the Scheme. However, it is envisaged that this option will be made available through the Scheme later in 2015 or during 2016.

• Income drawdown: keeping your retirement account invested and taking an income directly from your account (known as ‘income drawdown’ or ‘drawdown’). You can take 25% of your retirement account up front as a tax-free cash lump sum under this option and keep the balance invested in the investment funds you have selected. This option is currently not available through the Scheme. However, it is envisaged that this option will be made available through the Scheme later in 2015 or during 2016.

Please note that it is possible to take one or a combination of all four options at retirement, although not all of the options outlined above are currently available within the Scheme. Page 9 provides further information. Each option has advantages and disadvantages and we have set out some of the key features in this guide on pages 10-17.

www.hppension.co.uk 3

Protecting your retirement account – lifestyle glidepathsIt is important that you think about what type of income you would like in retirement as this decision will affect your investment choices. As you get closer to your retirement, it is important to protect your retirement savings by aligning your investments with your retirement income decisions. For example, if you plan to buy an annuity at retirement, which guarantees an income for life, you want to ensure your investments are moved into assets that aim to follow annuity price trends, rather than remaining invested in growth assets. This is because you will have less time to rebuild your savings if the market falls between now and your retirement. On the other hand, if you plan to keep your retirement account invested and use income drawdown, or take cash at retirement, your investment choice will be different.

To help you protect and position your retirement account to target your income preferences there are five lifestyle glidepaths available. Lifestyle glidepaths are investment strategies designed to automatically change the mix of your investments over the last five years as you approach your SRD; from the assets you chose for the growth phase, towards assets that better match the type of retirement income you wish to choose (the protection phase). The lifestyle glidepaths are designed as follows:

1. To target 50% cash and 50% level (non-increasing) annuity – this is the Scheme’s default lifestyle strategy if you do not make an active investment decision.

2. To target 25% cash and 75% level (non-increasing) annuity purchase.

3. To target 25% cash and 75% increasing annuity purchase.

4. To target 100% cash.

5. To target income drawdown.

Pages 20-22 will explain more about the lifestyle glidepath options and what to do if you want to choose your own investments.

4 Retirement Guide

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Do you have enough retirement savings to retire?

Will you retire at your SRD?

What are your retirement income preferences?

Do you want to take a tax-free cash lump sum in return for a lower income, or is a higher income more important to you?

How will you protect and/or position your retirement account as you get closer to your SRD?

Using this guideBecause of the wide range of options available, you may find that not all of the information outlined in this guide is relevant to your own personal circumstances. But whatever your situation there are a number of important decisions for you to consider. These are:

As retirement approaches

Six months before SRD

1 Review your pension illustration from Capita

2 Obtain free and impartial guidance through Pension Wise

3 Decide which income option is right for you

4 Complete the paperwork

Retirement

Pre-retirement

Six years before SRD

1 Decide if you still wish to retire at your SRD

2 Consider which income option is going to be right for you

3 Decide how you are going to invest your retirement account

4 Choose a lifestyle option that is appropriate for your income preferences

We want you to have all the information to hand to make an informed decision. However, this guide is not exhaustive. The Government has set up a free and impartial guidance service for everyone with DC savings (such as this Scheme) at the point of retirement, but you may wish to seek additional financial advice if necessary. There are also plenty of resources you might like to consult and these are outlined at the end of the guide.

To help ensure that you have taken all of the steps needed in planning your retirement, you will find a checklist on the next page. To help you further, the Scheme has a retirement planning process that begins six years before your SRD. This allows you to decide what type of income you will take, the options you will have when you retire and assess whether one of the lifestyle glidepaths is appropriate for you.

When you are six months away from your SRD the Scheme’s retirement process will help you choose the right retirement income option for you.

The chart below summarises how the retirement process works. The retirement process begins six years before your SRD and ends at your retirement. It shows the decisions you will need to take between now and then to help you meet your retirement goals.


Your pre-retirement checklistOnce you have read this guide, use this checklist to make sure you have taken the right steps in planning your retirement income.

Task Page 3

1. Decide how much income you will target in your retirement. 6

2. Request a State Pension forecast to find out how much you will receive. 23

3. Request retirement quotations for pension schemes from any previous employers and any private pensions you may hold. Contact the Pensions Tracing Service to track down pensions from employers with whom you have lost touch with.

23

4. Add up all of your pension savings and check you have enough income to support you in retirement.

7

5. Take action if you have a shortfall. You can consider:

a. Delaying your retirement.

b. Saving more.

8

6. Decide how you want your income paid from the Scheme. 9-17

7. Take free guidance from Pension Wise. 8

8. Seek additional financial advice if necessary. 8

9. Decide if you still plan to retire at your SRD. You can find your SRD on your benefit statement or you can log in securely to the Scheme website at www.hppension.co.uk

22

10. Contact Capita if you wish to delay your retirement. Continue with this checklist if you still plan to retire at your current SRD.

22

11. Decide on your investment strategy and choose a lifestyle glidepath (or self-select options) for the next six years. You can make a change at a later date if you wish.

20-22

12. Complete and return Capita’s paperwork to confirm your preferred lifestyle glidepath.

22

13. Make a note to review your pensions from time to time to make sure you remain on track to meet your retirement goals.

6 Retirement Guide

Planning your retirement incomeThe first step when planning for your retirement is to think about your long term plans and what they are likely to cost. The Pensions Policy Institute released some useful research* which could help you understand what you could be aiming for in retirement. Take a look at the two lifestyles below and see which one better describes your situation at retirement:

Modest lifestyle in retirement Comfortable lifestyle in retirement

How much could it cost? To achieve what they call a ‘minimum acceptable standard of living’, the research suggests a single person will need around £11,000 a year (or £211 a week).**

If you want a standard of living that is similar to the one you had in your working life, you may need more than the minimum. The Basic State Pension will provide some money towards your income in retirement, but it is unlikely to be enough for most people.

To achieve a more ‘adequate standard of living’ the research suggests that you will need a retirement income that is at least 50% of what you earned before you retired.

For example:

If you are currently earning £30,000 a year you should be looking to provide an income in retirement of at least £15,000 for a single person (or £288 a week).**

What sort of retirement lifestyle could it deliver?

This lifestyle could be one where you live off a little more than the State Pension. Most people would struggle to meet everyday bills on the State Pension alone. This lifestyle may involve worrying about the cost of living and limited money for day-to-day activities.

This lifestyle could be one where you can continue some of your ‘working life’ living standards. Holidays and going out for meals could be more affordable with this approach.

* The research was outlined in the report: ‘Retirement income and assets: the implications for retirement income of Government policies to extend working lives’ which is available at: www.pensionspolicyinstitute.org.uk

** This includes the Basic State Pension of £6,029.40 for 2015/16.


Assessing your income needs in retirementWhen you plan for your retirement, you are planning for a major lifestyle change. With a different lifestyle, your spending habits are likely to change according to your health and how far into your retirement you are. As with your working life, things can be unpredictable but when planning the amount of income you might need, it could be helpful to think of your retirement in three stages:

Review your retirement savings thoroughlyOnce you have decided on the income that you would need in retirement, it is important to check that your retirement savings meet your lifestyle requirements. When thinking about your savings, include:

• Your savings in the Scheme – check your latest benefit statement to see what income you might receive and that you have selected the right retirement age.

• Any other savings and investments you have – check the latest values and when they are due to pay out any interest or returns.

• Savings in other pension schemes from previous employment(s) – check your benefit statement(s). If you have lost information on your pension from previous employments, you can contact the Pension Tracing Service using the details provided at the end of the guide (see details on page 23).

• Your State Pension – ask for a forecast by contacting the State Pension service using the details provided on page 23.

Early retirement

Active and independent

Mid retirement

Less active but independent

Late retirement

Less active and dependent

• Travelling and doing the social activities that you enjoy.

• Looking after grandchildren, parents or other dependants.

• Learning a new skill.

• Providing financial support to children if needed.

• Working part time.

• Spending more time enjoying home activities such as gardening or reading.

• Holidays and occasional evenings out.

• Enjoying charity work.

• Being cared for in your own home.

• Continuing to meet food, utility and council tax bills.

• Affording to live in a good quality care home of your choice.

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8 Retirement Guide

Take action if you have a shortfallIf you notice that you are unlikely to achieve your desired income at retirement, there are a few things you can do to improve your outcome:

• Save more – you can increase your contributions during the MyChoice enrolment period*. Contact the Scheme Administrators using the contact details at the end of the guide to find out more.

• Work for longer – Contact the Scheme Administrators to change your SRD.

• Continue work but part time – Go to page 18 to find out how the Scheme’s flexible and phased retirement options can help if you are not ready to fully retire at your SRD.

The Pension Planner tool on the Scheme’s website at www.hppension.co.uk will show you how some relatively small changes now could make a big difference to your future.

* There may be tax implications if you contribute more than £40,000 (for tax year 2015/16) to pension schemes in any one year. This includes the employer contributions made on your behalf and pension contributions made to other defined contribution (DC) schemes and pension earned in defined benefit (DB) schemes.

Take advicePension Wise

Make sure you take financial advice before making your decision. The Government has set up a free and impartial guidance service for everyone with a DC pension at the point of retirement. This is known as Pension Wise. Guidance will be provided over the phone or online by The Pensions Advisory Service (TPAS), and by the Citizens Advice Bureau (CAB), who will provide face-to-face guidance. Guidance will be provided on the following:

• What you can do with your pension pot

• The different pension types and how they work

• What’s tax-free and what’s not.

Find more information on Pension Wise at: www.pensionwise.gov.uk

Financial advice

By law, neither the Trustees nor the Company can give you financial advice. If you need help, you should consider speaking to a financial adviser – you can find more information about how an adviser can help and how to select one at www.moneyadviceservice.org.uk/en/articles/choosing-a-financial-adviser and you can find an adviser local to you at www.unbiased.co.uk


Your retirement income optionsThere are many choices available to you and opportunities to make the most of your retirement account. From age 55 (or age 50 if you have a protected retirement age), you will be able to purchase an annuity, draw your savings down over time, take them as cash, or a combination of these options.

In this section of the guide we give more detailed information about these options. The Government’s ‘Pension Wise’ service provides free and impartial guidance at the point of retirement but you should seek financial advice if you are unsure about what would be right for you. Please be aware that you will need to pay for financial advice. Below, we provide a summary of the options to help you decide.

Your options at retirementWhen you retire, you can use your retirement account as you wish –

Pension income (annuity)

The option of taking up to 25% as a

tax-free lump sum (taken upfront).

To manage the tax you pay, you can take your

entire Retirement Account in a number of cash instalments.

An annuity provides a secure income for life (purchased with an external provider).

You can choose between a fixed or increasing annuity.

Available from the Scheme

100% Cash (Single cash lump sum)

You can take your entire retirement account as

a single cash lump sum. 25% will be tax free with the balance taxed at your

marginal rate.

The option of taking up to 25% as a

tax-free lump sum (taken upfront).

Each cash lump sum taken will consist of 25%

tax free cash with the balance taxed at your

marginal rate.

Income drawdown allows you to drawdown your remaining savings over

time. You keep your savings invested and withdraw

cash (taxed at your marginal rate) as and

when you need it.Available from the Scheme

The Trustees and the Company envisage that they will offer multiple cash lump sums and drawdown in the Scheme later in 2015 or during 2016, subject

to completing their due diligence and assessing the implementation implications on the Scheme.

100% Cash (Multiple cash

lump sums)

Flexible income (Income drawdown)

A note on tax: For all options, after any tax-free cash allowance,

any further cash withdrawal will be counted as income and taxed at your marginal rate.

£ Value of your retirement account

The following pages provide further information about the options for taking your retirement account. When looking into which option may be suitable for you, remember you can use all or a combination of the options as you wish.

10 Retirement Guide

1. Pension income (annuity)

AnnuitiesFrom age 55 (or 50 if you have a protected pension age), you have the option of using your retirement account to buy a guaranteed pension income, known as a lifetime annuity. This is the traditional retirement income option. If you take this option, you will convert your retirement account to provide an income for the rest of your life. There are a number of different options when purchasing a lifetime annuity, which include having an increasing income to keep up with the cost of living (known as an increasing annuity) and providing an income for your spouse if you were to die first (known as a joint life annuity).

Pension legislation has changed to offer more flexibility such that you no longer have to purchase an annuity by age 75. However, once you have purchased your annuity, you cannot change your mind and therefore it is important to select the right option for your circumstances. It is also important to shop around and make sure you get the best income for your savings.

Annuity broking serviceTo help you get the best income possible at retirement the Trustees have contracted with Capita’s Annuity Desk to provide you with a full Open Market Option annuity broking service at retirement. This service is free of charge and is provided automatically for you at retirement. The annuity broking service will obtain a range of annuity rates based on your personal circumstances. It is advisable to use the Scheme’s annuity broking service unless you receive advice from your own financial adviser to use a different approach.

Some insurance providers are more competitive than others, so if you decide to purchase an annuity, use Capita’s Annuity Desk to find the highest income for your retirement account. The difference between the best and the worst annuity rates can be as much as 24%. (Source: The Association of British Insurers. November 2014.)

Annuity optionsThere are a number of options linked to the purchase of a lifetime annuity from which you can select to meet your personal circumstances. You can choose more than one option if you select an annuity. The most common annuity options are listed on the right.

Single life annuity

This type of annuity will provide you with an income for life and will not provide an income to your spouse, civil partner or dependant on your death.

Joint life annuity

This type of annuity will provide you with an income for life and then pay a percentage of your income to your spouse, civil partner or dependant on your death. For example, you can select an annuity that pays 50% of your income to your spouse on your death.

Level annuity (non-increasing)

This type of annuity will pay you a fixed income which does not increase in value for the rest of your life. This type of annuity costs you less than an increasing annuity.

Increasing/Rising annuity

This type of annuity will pay you an income which increases in value for the rest of your life. Your income will typically increase annually and the rate of increase is selected when you buy your annuity. For example, you can select an annuity that increases by a fixed percentage each year such as 3% or 5%. Alternatively, you can select an annuity that increases in line with the rising cost of living such as the Retail Prices Index (RPI) or Limited Price Indexation (LPI)*.

* Increases in line with the Retail Prices Index, limited to 5% in any one year.

Guarantee periodThis type of annuity will pay out the balance of any unpaid income to your beneficiaries or estate should you die within a guarantee period. For example, if you selected an annuity with a five year guarantee, and then died three years after your retirement date, the annuity provider will typically pay your beneficiaries or estate a lump sum for the final two years’ income.

Enhanced annuity (also known as ‘impaired life annuity’)You could qualify for an ‘enhanced annuity’ if you have certain medical and lifestyle conditions such as serious illnesses or if you smoke. An enhanced annuity will pay you a higher income in comparison to a standard annuity for a ‘healthy’ individual as you are expected to receive your pension income for a shorter period of time. It is important that you complete a Health Questionnaire and check with Capita’s Annuity Desk whether you qualify for an enhanced annuity before committing to buying a particular type of annuity.


Lifetime annuity

Advantages Disadvantages Key risks Potential income*: annuity purchased with an account of £100,000

Single Life Pays a higher income in comparison to a joint life annuity.

No income for your dependants on your death.

You cannot change your mind if you need to provide a spouse’s pension after the annuity purchase.

£5,325 a year (single life, level income with no guarantee).

Joint Life Pays an income to your spouse on your death.

Pays a lower income in comparison to a single life annuity.

Your marital circumstances may change.

£4,981 a year (joint life, level income with a 50% spouse’s pension, no guarantee).

Level Pays a higher income in comparison to an ‘increasing’ type annuity at the outset.

Does not keep pace with the rising cost of living.

Your purchasing power will be eroded over time due to price inflation.

If you live for a long time in retirement and the cost of living rises, your income will not increase to keep up with the cost of living.

£5,325 a year (single life, level income with no guarantee period).

Increasing/ Rising

Pays an income which will increase in value for the rest of your life. Could offset the rise in inflation and maintain your purchasing power.

Pays out a significantly lower income at the start in comparison to a ‘level’ annuity.

You will need to live for a prolonged period in retirement before your income will match that from a ‘level’ annuity.

£3,328 a year (single life, increasing income in line with the Retail Prices Index with a five-year guarantee).

Guarantee period

Pays an income to your estate if you should die within the ‘guarantee period’ (typically five years).

Pays out a lower income compared to an annuity without a guarantee period.

You will be paid a lower income to pay for the guarantee.

£5,301 a year (single life, level income with a five-year guarantee).

Enhanced Pays a higher income in comparison to an annuity for a healthy individual.

n/a n/a £6,366 a year (single life, level income with no guarantee, assumes a regular smoker for the last 10 years).

* The potential annuity income that you might receive is calculated using January 2015 annuity rates and these prices may change over the course of the year (Source: TOMAS). The figures above are for a 65 year old man or woman (non-smoker unless stated otherwise).

The table below outlines some of the advantages and disadvantages of different types of annuities. All annuities are treated as income for tax purposes.

12 Retirement Guide

Annuity purchase of £100,000The following chart illustrates the different levels of income associated with a ‘level’ and ‘increasing’ annuity.

In this example we have assumed that the member retiring is a 65 year old man or woman who buys a single life annuity with no guarantees for £100,000 at January 2015 annuity prices (Source: TOMAS).

We have also assumed that inflation is 3% a year. When you retire, the actual figures are likely to be different from the assumptions made in the illustration above. To find out what you might get when you retire, check your latest benefit statement. The table below shows the different levels of income you might receive if you select either of the options.

Sample annuity rates

Age 55 60 65 70 75

Single life, level, no guarantee £4,484 £4,896 £5,325 £5,953 £7,461

Single life, level, five year guarantee £4,478 £4,882 £5,301 £5,932 £7,375

Single life, RPI annual increases, five year guarantee

£2,392 £2,831 £3,328 £3,968 £5,383

Single life, 3% annual increases, five year guarantee

£2,704 £3,151 £3,646 £4,278 £5,699

Joint life 50%, level, no guarantee £4,257 £4,643 £4,981 £5,528 £6,758

Joint life 50%, 3% annual increases, no guarantee

£2,487 £2,909 £3,333 £3,910 £5,106

* Spouse/civil partner assumed to be the same age. (Source: TOMAS. January 2015)

Please note that the above figures are for illustrative purposes only.

£3,500

£4,500

£5,500

£6,500

£7,500

£8,500

£9,500

£10,500

£11,500

6664 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98Age

Single Life Annuity – No increases

Single Life Annuity – 3% a year increases


2. Cash optionsFrom age 55 (or 50 if you have a protected pension age) you have the option of taking all your retirement account as 100% cash in single or multiple instalments. 25% will be tax free with the balance taxed as income in the year that you take it. There are two options if you want to take all your retirement account as 100% cash as follows:

Option 1 – Single cash lump sumTaking all of your retirement account as a single cash lump sum, 25% of which will be tax free, with the remainder taxed at your marginal rate. This option is available from the Scheme.

It is important to be aware that taking your savings in one lump sum could affect your overall tax rate and therefore increase the amount of income tax you pay. For example, you could pay income tax at Basic Rate (20%), Higher Rate (40%) or Additional Rate (45%) depending on the size of your retirement account and any other taxable income sources in the year of withdrawal.

Option 2 – Multiple cash lump sumsTaking all of your retirement account in multiple instalments of cash over a number of payments and/or tax years. With each cash withdrawal, 25% will be tax-free, with the remainder taxed at your marginal rate. This option is expected to be available from the Scheme later in 2015 or during 2016.

It may be appropriate for tax planning purposes not to take the cash in one instalment, but as a series of payments spread across a number of tax years. Also, if you are thinking about taking your pension as cash, make sure you look into how to invest it.

Michael is 65 and has £100,000 in his retirement account at his SRD.

Emma is 65 and has £100,000 in her retirement account at her SRD.

He decides to take all of his retirement account as a single cash lump sum to pay the outstanding balance on his mortgage. £25,000 of this will be tax free (i.e. 25%) and the remaining £75,000 will be taxed at Michael’s marginal rate.

She has no outstanding debts and decides to spread the withdrawal of her retirement account over four tax years to manage the level of income tax she has to pay as follows:

• In tax year 2015/16 – Emma takes a single cash lump sum of £25,000, £6,250 of this is tax free (i.e. 25%), with the remaining £18,750 taxed at Emma’s marginal rate.

• In tax years 2016/17, 2017/18 and 2018/19 – Emma subsequently takes a single cash lump sum of £25,000 in each tax year. With each cash lump sum of £25,000, £6,250 is tax free and the remaining £18,750 taxed at Emma’s marginal rate.

If you’re taking all of your retirement account as a cash lump sum, make sure you get advice as the amount of tax you pay could be substantial.

14 Retirement Guide

3. Flexible income (income drawdown)From age 55 (or 50 if you have a protected pension age) you have the option of taking as much or as little income as you wish directly from your retirement account over a period of time. This is known as ‘income drawdown’ and provides you with complete flexibility and control over how you use your retirement account in retirement.

You will be able to take 25% of your retirement account as a tax-free cash lump sum before commencing income drawdown. The balance of your retirement account will be taxed at your marginal rate as you take regular income withdrawals.

This option is expected to be available from the Scheme later in 2015 or during 2016. In the meantime, if you wish to use drawdown, your retirement income over time, you will need to transfer your savings out of the Scheme to an arrangement that offers this facility such as a Self Invested Personal Pension (SIPP). The funds in your chosen SIPP will differ from the funds available in the Scheme so you will need to select new investments depending on your attitude to risk and personal circumstances. Your pension savings would remain invested with your chosen provider and you would have to decide how to invest them. If you need investment advice, speak to a financial adviser.

John is 65 and has £100,000 in his retirement account at SRD.

John decides to take his £25,000 (i.e. 25%) as tax-free cash and transfers the balance, £75,000 to a SIPP provider to commence regular income drawdown. John selects his own investment funds to invest the £75,000 and decides to withdraw a monthly income of £500 per month (which is taxed at John’s marginal rate) until he has depleted all his savings.

You should speak to a financial adviser if you need help with tax planning, investment advice or choosing the best option for your circumstances. Details of how to get financial advice are on page 23.

Note: future pension savings and taxIf you begin taking part or all of your benefits under the cash or flexible income options detailed in this section, this will affect your ‘Annual Allowance’ in the future. Your Annual Allowance is the limit on your pension savings that receive tax relief each year. More details are provided on page 18, in the ‘Additional flexibility at retirement’ section.


Comparing your options at retirementThe following table shows some of the advantages, disadvantages and risks associated with the different retirement options available to you.

1. Pension income (annuity)

Advantages Disadvantages

Annuity purchase

• Income and annuity features are selected at the point of retirement and guaranteed for life.

• Annuities can be inflexible as the income and features are irreversible once selected.

Value for money

• Guaranteed income payable for life irrespective of stock market returns and what is going on in the economy.

• No further fees payable after the annuity purchase.

• Some commentators view current annuity rates as poor value.

• An annuity cannot be amended once purchased.

Income certainty

• Predictable and regular income paid for the rest of your life.

• Income levels cannot be changed or varied should your circumstances and needs change in retirement.

Investment risk

• Pension savings are no longer exposed to investment risks and cannot fall in value. The annuity provider takes on the investment risks.

• Loss of the potential for your pension savings to grow (and therefore provide a higher income) if stock market returns are favourable during your retirement.

Longevity risk

• Income is payable for life. The annuity provider takes on the longevity risk.

• Pension savings and income are lost on death. Could be poor value if you die early in retirement (and you have not purchased any protections).

Inflation risk • Increasing annuities will provide some protection against inflation risk and minimise the risk of your purchasing power being eroded during retirement.

• Increasing annuities are expensive in comparison to a level annuity. You will need to live for a prolonged period in retirement before the increasing annuity pays an income equal to that from a level annuity. Please refer to the illustration on page 12.

Income tax and inheritance planning

• Income tax and any inheritance benefits are set at the point of annuity purchase.

• Annuities can be inflexible for income tax and inheritance planning purposes.

16 Retirement Guide

2. Cash option


Cash lump sum option

• You have full control and can choose to spend or invest your savings as you wish.

• You can purchase an annuity if/when it suits you and when rates are favourable.

• Full control will mean you need to manage your lump sum carefully, such as investing any funds that you are not spending immediately.

Value for money

• If annuity rates are poor you will not get as much income for your retirement savings.

• Cash gives you the potential to purchase an annuity when rates are more favourable.

• Annuity rates may not improve and could worsen in the future.

• What you do with your cash in the long-term will have an impact on whether you get good value from your savings.

Income certainty

• Income can vary to meet changing circumstances and needs in retirement e.g. part-time work or phased retirement.

• This will depend on how quickly you choose to spend the cash.

• You need to manage your cash appropriately to ensure it lasts as long as you need it.

• Overspending could mean you deplete your cash savings quickly in retirement.

Investment risk

• If cash is taken in one go, cash savings are no longer exposed to investment risks and cannot fall in value. If cash is taken in instalments over a period of time then there will still be some investment risk.

• Loss of the potential for your cash savings to grow (and therefore provide a higher income) if stock market returns are favourable during your retirement.

• However, if you choose to invest your cash savings, your income could fall in value if the stock markets are unfavourable during your retirement.

Longevity risk

• You are in control of your cash savings and can use them as you see fit.

• Any unused cash savings can be left to dependants and/or estate on death.

• You keep longevity risks and risk running out of your pension savings in retirement and relying solely on the State Pension and/or other personal savings.

Inflation risk • Cash savings can be invested in growth funds to offset inflation risk.

• Your purchasing power may be eroded if cash interest rates do not keep pace with inflation during retirement.

• Cash savings exposed to investment risks to keep pace with inflation means that your fund value will go up and down in value, depending on market performance.


• You can vary your cash withdrawals to help manage your income tax during retirement (if withdrawn in instalments over a number of tax years).

• The cash option may be useful in inheritance planning.

• Any unused cash savings can be left to dependants and/or estate on death.

• Income tax payable on withdrawals at your marginal rate of income tax.

• Taking all of your retirement account as a single cash lump sum is likely to incur a significant income tax liability e.g. Basic Rate (20%), Higher Rate (40%) and Additional Rate (45%) depending on the size of your retirement account and any other taxable income.

• Unused cash will form part of your estate and could be subject to inheritance tax.


3. Flexible income (income drawdown)


Drawdown option

• Pension savings are not crystallized at the point of retirement, giving more flexibility on when you can take your pension.

• The purchase of certain annuity features e.g. spouse’s pension, can be deferred to a later date.

• Drawdown is complex to understand in comparison to annuities.

• Financial advice might be required.

Value for money

• If annuity rates are poor you will not get as much income for your retirement savings.

• Drawdown gives you the potential to purchase an annuity when rates are more favourable.

• Annuity rates may not improve and could worsen in the future.

• There will be a cost to administer drawdown.

Income certainty

• Income can vary to meet changing circumstances and financial needs in retirement e.g. part-time work or phased retirement.

• Income is not guaranteed and will vary depending on the investments you choose and whether your savings increase or decrease in value.

• Overspending and poor investment returns could mean you deplete your pension savings quickly in retirement.

Investment risk

• Potential for pension savings to grow through continued investment in growth funds and provide a higher income.

• Investment risks remain during retirement as pension savings remain invested and may fall in value.

Longevity risk

• You are in control of your savings and can use them as you see fit.

• Any unused pension savings can be left to dependants and/or estate on death.

• You keep longevity risks in retirement and the risk of depleting your pension savings in retirement.

Inflation risk • Pension savings can be invested in growth funds to offset inflation risk.

• Pension savings exposed to high investment risks to keep pace with inflation, which means that your fund value will go up and down, depending on market performance.


• Income can vary to manage income tax during retirement.

• The drawdown option may be useful in inheritance planning.

• Any unused pension savings can be passed directly to dependants tax-free on death before age 75 from April 2016.

• Income tax payable on withdrawals at your marginal rate of income tax.

• Lump sum death benefits are subject to a 45% tax charge on death over age 75 from April 2015.

• From April 2016, the Government proposed that death benefits will be taxed at the recipient’s marginal rate of income tax.

• Inheritance tax may be payable if funds fall into the estate.

It is important to remember that income drawdown is not appropriate for everyone as your savings will remain invested and therefore the value of your savings can go down as well as up due to investment losses/gains.

Please note that drawdown facilities are expected to be available within the Scheme later in 2015 or during 2016. In the meantime, if you want to take drawdown, you would need to transfer your retirement account into a registered pension scheme that offers this facility e.g. a Self-Invested Pension Plan (SIPP). The Trustees strongly recommend that you seek financial advice from a financial adviser authorised and regulated by the Financial Conduct Authority (FCA) before making your decision, to ensure this option is right for your circumstances.

18 Retirement Guide

Additional flexibility at retirementThe Scheme offers you choice and flexibility as you approach retirement and it is important to spend time now thinking about whether you will be ready to retire in six years’ time and if you are ready, how you are going to plan ahead so everything is in place when you reach your SRD.

The flexibility that the Scheme offers depends on whether you are still contributing to the Scheme when you approach your retirement. In this section you will find a brief overview of the flexibility the Scheme gives you and more information is available from Capita, the Scheme Administrator.

Flexible retirementIf you are still working for HP and contributing to the Scheme when you approach your SRD you can use all or part of your retirement account as outlined below. You will need to be over the age of 55 (or 50 if you have a protected retirement age). Additionally, you will continue to build up further benefits in the Scheme for as long as you remain employed by HP.

1 Buy an annuity: You can take up to 25% of your retirement account as a tax-free cash lump sum (if you wish) and use the remainder to buy a lifetime annuity. This option is available within the Scheme and you select an annuity provider.

2 Single cash lump sum1: You can take up to 100% of your retirement account as a single cash lump sum. 25% will be tax free and the balance will be taxed at your marginal rate. This option is available within the Scheme.

3 Multiple cash lump sums1: As with the ‘single cash lump sum’ option but phasing the withdrawal over a number of payments and/or years. With each cash withdrawal, 25% will be tax free and the balance taxed at your marginal rate. This option is expected to be available within the Scheme later in 2015 or during 2016.

4 Drawdown an income2: Start an income drawdown programme. You can take 25% of your retirement account upfront as a tax-free cash lump sum and keep the balance invested in the investment funds you have selected. This option is expected to be available within the Scheme later in 2015 or during 2016.

1 Her Majesty’s Revenue and Customs (HMRC) refer to these payments as an ‘Uncrystallised funds pension lump sum’ (UFPLS).

2 HMRC refer to a ‘Flexi-access drawdown funds’ (FADFs).

Please note that options 3 and 4 are currently not available within the Scheme so you will need to transfer all or part of your retirement account from the Scheme to another registered pension arrangement, such as a ‘Self Invested Personal Pension’ if you would like to access these facilities. However, it is envisaged that this option will be made available through the Scheme later in 2015 or during 2016.

Please note that it is possible to take one or a combination of all four options at retirement. Each option has advantages and disadvantages and we have set out some of the key features in the previous section of this guide.


Partial transferThe Scheme also has a ‘partial transfer’ facility. This means that you can transfer part of your retirement account into another registered pension arrangement of your choice. Any request for partial transfer will be subject to any conditions that the Trustees set.

Any request for a partial transfer will be subject to any conditions that the Trustees set. If you are still employed by HP and making contributions into the Scheme at the time you transfer out you will continue to build further benefits for as long as you remain employed by HP but your account will be reduced by the amount you have transferred out.

The flexible retirement policy and the partial transfer policy are both available only with the consent of the Trustees and the Company and it can be changed from time to time.

The flexibility that the Scheme offers means that you can use either one or both options to help plan your retirement. For example, you may decide to reduce your working hours and want to take some of your retirement account to supplement your salary. The flexible retirement option will mean that you can take some of your retirement account and leave some invested for when you decide to fully retire.

If you are unsure what options are suitable for you, the Trustees recommend you take financial advice. Make sure that you choose a financial adviser who specialises in pensions and retirement planning and who is authorised and regulated by the FCA.

Annual AllowanceThe ‘Annual Allowance’ is the maximum contribution that can be paid in a year (tax years for Scheme purposes) without an additional tax charge being payable. The Annual Allowance is £40,000 (which includes both employee and employer pension contributions) for the 2015/16 tax year. This is a total figure rather than a per scheme figure – so if you contribute to another scheme such as a personal pension, or have benefits in a defined benefit scheme which increase in value, then they normally count towards your Annual Allowance. In calculating your limit for any year you may add any unused allowance from the previous three years, provided you were a member of a pension scheme in those years.

From April 2015, your Annual Allowance may reduce to £10,000 a year (from £40,000) when you access your pension savings under the new flexibility. For example, when you start receiving an income from a drawdown programme or start taking your savings in a single or multiple cash lump sums. If your Annual Allowance does reduce to £10,000 a year, you will not be permitted to carry forward any unused allowance from the previous three years.

The first time you take benefits flexibly from any scheme, that scheme will give you a statement which confirms the date on which this happened and what it means within 31 days. If you are an active member of other schemes at that time you will normally have to give them a copy of the statement within 13 weeks so that they know your Annual Allowance has been reduced. You will be given more detail about this at the time.

Please note that taking your tax free cash lump sum (i.e. Pension Commencement Lump Sum) and/or buying a lifetime annuity would not trigger the lower Annual Allowance. Please note that some providers might offer an annuity that reduces in payment. Taking this type of annuity will normally result in the reduced Annual Allowance.

20 Retirement Guide

Protecting your retirement accountThroughout your membership of the Scheme you have been saving towards your retirement. You have invested your retirement account for long term growth (i.e. growth phase), but as you get closer to your SRD, it is important to review where your retirement account is invested to protect the money you have built up in the Scheme (i.e. protection phase).

Review your current investment optionsThe investment options available in the Scheme have been designed to help build your retirement account, according to a level of risk which you have selected. The risk you are taking while building up your retirement account during the growth phase means that your pension savings could rise or fall in value according to where you invested and market performance. As you come closer to your SRD it is important to review where your retirement account is invested and consider the investment risks you are taking as you don’t have as much time to rebuild your retirement account if the value of your pension savings was to fall.

Most members are prepared to take different levels of risk while their retirement account is growing, but as they approach retirement, most look to take less risk and protect the money they have built up. By taking less risk when you are closer to retirement, you are reducing the chance of your savings falling significantly should growth markets suffer substantial falls.

Lifestyle glidepath optionsLifestyle glidepaths have been designed to automatically change the mix of funds you are invested in as you approach your SRD. As you approach your SRD, your retirement account will be gradually switched into lower risk funds (depending on your lifestyle selection) over five years to help to protect your savings and/or position your retirement account to meet your income preferences. The process of switching of funds from high-risk assets to lower-risk assets is carried out on a monthly basis to minimise the risk of significant market movements. There are five different lifestyle glidepaths you can choose from to meet your income preferences as detailed below.

Buying a guaranteed income for life (lifetime annuity)If you plan to buy an annuity (which provides you with an income for your retirement) you will have important decisions to make. You have a choice between a level pension or a rising pension which increases over time. To accommodate both choices, there are three lifestyle options targeting the purchase of an annuity as follows:

Option 1: lifestyle glidepath which targets a level annuity and cash (also the Scheme’s default option)This lifestyle glidepath has been designed to gradually move your retirement account to reach 50% in the HP Cash Fund and 50% in the HP Pre-Retirement Fund by your SRD. This option may be suitable if you plan to take a combination of cash and buy a ‘level’ (i.e. non-increasing) annuity at retirement. Please note that if the cash is taken as one lump sum, there may be tax implications.

The diagram below shows how lifestyle glidepaths work. This glidepath is for the default lifestyle glidepath, targeting 50% cash and 50% annuity.

5 4 3 2 1 0 0

10

20

30

40

50

60

70

80

90

100 n HP Higher Growth & Risk Fund (default members) or your growth fund(s) (self-select members)

n HP Cash Fund

n HP Pre-Retirement Fund

% o

f sav

ings

inve

sted

Years to SRD


5 4 3 2 1 0

0

10

20

30

40

50

60

70

80

90

100

Option 2: lifestyle glidepath which targets a level annuity and cashThis lifestyle glidepath has been designed to gradually move your retirement account to reach 25% in the HP Cash Fund and 75% in the HP Pre-Retirement Fund by your SRD. This option may be suitable if you plan to take a combination of cash and buy a ‘level’ annuity at retirement, although with a lower level of cash in comparison to Option 1, as only the tax-free allowance is being taken.

Options 1 and 2 may be suitable for you if you plan to buy an income which is fixed at the outset and does not increase during your retirement.

Option 3: lifestyle glidepath which targets a rising annuity and cashThis lifestyle glidepath has been designed to gradually move your retirement account to reach 25% in the HP Cash Fund and 75% in the HP Pre-Retirement Inflation Linked Fund by your SRD. This option may be suitable if you plan to take a combination of cash and buy an increasing annuity at your retirement. You can find out more about the types of annuity and income options at retirement on pages 9-17.

n HP Higher Growth & Risk Fund (default members) or your growth fund(s) (self-select members)

n HP Cash Fund

% o

f sav

ings

inve

sted

% o

f sav

ings

inve

sted

Years to SRD

Years to SRD5 4 3 2 1 0

0

10

20

30

40

50

60

70

80

90

100


n HP Cash Fund

n HP Pre-Retirement or HP Pre-Retirement Inflation Linked Fund

Taking all your retirement account as cash

Option 4: lifestyle glidepath which targets 100% cashFrom April 2015, you can take your entire retirement account as a cash lump sum(s). 25% will be tax free and the remaining 75% will be taxed at your marginal rate. This lifestyle glidepath gradually moves your retirement account to reach 100% in the HP Cash Fund by your SRD.

This option may be suitable if you plan to take all your retirement account as cash.

22 Retirement Guide

Income drawdown

Option 5: lifestyle glidepath which targets income drawdown and cashFrom April 2015, it is possible to keep your money invested and receive an income directly from your retirement account. This is known as ‘income drawdown’ or ‘drawdown’. If you choose to take this option your money will remain invested in the funds you have selected and you will receive an income directly from these funds. The value of your savings and also the level of your income will be based (in part) on the investment performance of the funds you choose as well as how much you choose to drawdown each year.

You can start a drawdown programme irrespective of the size of your retirement account and there are no limits on the amount you can withdraw in any year. 25% will be tax free (which is taken up front before you commence drawdown) and the remaining 75% will be taxed at your marginal rate as you take income from your savings.

This lifestyle glidepath gradually moves your retirement account to reach 37.5% HP DGF Fund, 37.5% HP Lowest Growth & Risk Fund and 25% HP Cash Fund.


n HP Cash Fund

n HP Lowest Growth & Risk Fund

n HP DGF Fund

5 4 3 2 1 0 0

10

20

30

40

50

60

70

80

90

100

For further information on the lifestyle glidepaths and/or the investment options available, please refer to the Investment Guide at www.hppension.co.uk

Changing your Selected Retirement DateIt is important to check that you are still intending to retire at your SRD, which you might have chosen when you joined the Scheme, otherwise your retirement account may be switched into the lifestyle glidepath either too early or too late. The Scheme’s normal retirement age is 65 if you did not choose a SRD. Please contact the Scheme Administrators if you need to check or change your SRD.

Selecting a lifestyle glidepath or self-select fundsTo select one of the lifestyle glidepaths or to self-select your investment funds contact the Scheme Administrator on the details provided at the end of the guide. Alternatively, you can also review and/or change your investments by logging into your account on the Scheme website www.hppension.co.uk. To find out more about choosing the right lifestyle glidepath or the self-select funds available please read the Investment Guide on the website www.hppension.co.uk. If you are unsure which investments are right for your circumstances, the Trustees strongly recommend that you get advice from a financial adviser authorised and regulated by the FCA.

% o

f sav

ings

inve

sted

Years to SRD


Useful informationThere are a number of resources available to help you as you approach retirement:

www.hppension.co.uk – to access your personalised pension information, allowing you to securely view and check your pension online.

www.pensionwise.gov.uk – a free and impartial Government service that helps you understand your new pension options.

www.unbiased.co.uk – if you need to contact a financial adviser. Financial advisers might charge for their services which you will be responsible for paying, so make sure you get a quote first.

www.dwp.gov.uk – for useful information on the range of benefits and services that the Department for Work and Pensions (DWP) provides.

www.gov.uk – for information about retirement planning and tax, as well as general public services.

www.pensionsadvisoryservice.org.uk – for free and impartial guidance on pensions over the phone or online.

www.citizensadvice.org.uk – for free and impartial face-to-face guidance in the lead up to retirement.

Contact detailsState Pension helpline

To get your State Pension forecast and details on how to claim your State Pension.

� 0800 731 7898

� Textphone: 0800 731 7339 Monday to Friday 8am to 8pm (except public holidays)

� www.gov.uk

Pension Tracing Service

To trace any missing pension savings.

� 0845 600 2537

� Textphone: 0845 300 0169

� www.gov.uk/find-lost-pension

Life Academy

For useful information on planning your retirement.

� 01483 301170

� www.life-academy.co.uk

The Money Advice Service

For useful information on managing your finances.

The Money Advice Service

� Holborn Centre 120 Holborn London EC1N 2TD

� 0300 500 5000

� www.moneyadviceservice.org.uk

Scheme Administration, Capita

If you have any questions about your pension and benefits records, you can get in touch with Capita:

� HPIS Administrator Capita Employee Benefits PO Box 4990 Sheffield S1 9GE

� 01227 773904

@ [email protected]

� www.hppension.co.uk

Getting in touch with the TrusteeYour views, comments and questions on pension matters are welcome and you should address them to:

� Scheme Secretary to the Trustees of the Hewlett-Packard Investment Scheme c/o Minh Tran Towers Watson 71 High Holborn London WC1V 6TP

@ [email protected]

24 Retirement Guide

Produced by Towers Watson | April 2015

Hewlett-Packard Investment Scheme Hewlett-Packard Limited Retirement Benefits Plan

pre-retirement guide · 3 protecting the savings in your retirement account during the next six...

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