Following the introduction of the pension freedoms in 2015, over-55s can now spend their savings as the wish, making it easier to fund the type of retirement they had always planned
No longer bound to buy an annuity, over-55s can take lump sums out of their pensions, cash them in or leave the money invested.
Here, we speak to a selection of retirees to find out how they are spending their savings and how the new rules are making it easier for them to retire their way.
Using the pension freedoms to fund a life full of varied activities and travel was the right choice for Natasha Chetwynd, 57, who is recently retired.
“I took advice and started a Sipp about 10 years before retirement, moving my company pension into this,” she says. She has around £1 million in her self-invested personal pension (Sipp) with AJ Bell Youinvest.
“A chunk was moved into flexible drawdown when I turned 55 and decided to retire, and it’s doing pretty much as I need it to – I take about £40,000 income a year, so that’s about 4%,” she says. “But I’m prepared to draw more if needed.”
Natasha previously worked as an investment manager and writer, and lives with her husband, Mark, 68, in Hackney, east London.
“I’m a naturally high-risk investor and invested some of my pension through a financial adviser, so the rest of my family had somebody to go to for advice too,” she says.
“I’m making use of the pension freedoms and I’m so glad I can leave my pension to my children, which wouldn’t have been possible with a workplace scheme.”
For Natasha, the attractions of flexible drawdown include being able to manage her savings tax-efficiently as well as the ability to spend more of her money now, while she is fit and able.
“We might spend less in a few years’ time,” she says. “And I’m careful to stay within the lower tax band with the amount I take out.” She plans to put some of the tax-free lump sum from her pension into an Isa, as a savings pot to use when needed.
Natasha is filling her retirement with plenty of activities. “I do a lot of local volunteering,” she says. She works at the Tate, helping people find their way around the gallery and sometimes giving short talks.
“I also cook a lunch once a week for anyone who wants to join, using waste food donated by local shops for a charity called Food Cycle, and I’m involved in the community garden.”
Natasha is also the president of her local Women’s Institute.
“We meet once a month and organise activities, such as life drawing, crafting and local history – they vary enormously,” she says.
She also spends time travelling with her husband.
“We go away for about three months of the year and have just come back from a five-week trip to Europe, starting with a wedding in Sicily,” she says.
“The pension freedoms have benefited people like me who are financially literate and have a significant pot – my financial adviser manages the direct overseas holdings. I really only invest in the stock market, with almost no money in bonds as rates are so low.”
How much income do you need in retirement?
The amount you’ll need for a comfortable retirement depends, of course, on your lifestyle.
Typically, experts suggest aiming for around half to two-thirds of your salary, as your costs will probably fall. Retirees have often paid off mortgages and won’t have to contend with commuting costs, for example, or the costs of raising children.
According to consumer group Which?, retired households spend around £26,000 a year on average, which covers basic spending, including utilities, and a few luxuries, such as hobbies and European holidays. However, this rises to £39,000 if you plan on long-haul trips, for example.
There are plenty of online retirement calculators that can help work out how much you need to save, and how much you might need. For example, go to Fidelity.co.uk/retirement/calculators.
Glyn and Christine Carpenter
Glyn and Christine Carpenter, both 65 years old, are involved in the local community, as well as dog breeding.
The couple have been married for 44 years and live in Frome, Somerset, in a four-bedroom house. One of their favourite retirement activities is taking part in a local music-hall troupe, where they play ukuleles, sing, and take part in comedy.
“If anything, we need to scale down our commitments,” says Christine. “Among these is also being chairman of the village hall and secretary of two dog clubs.”
They have also been breeding and training dogs for many years, and currently have three Weimaraners. Christine is representing Great Britain in the first European Weimaraner championships, held near Pisa, Italy.
“We plough back any money we get from breeding into showing and competing with the dogs – at one stage we had eight,” she explains.
Their final salary pension schemes, from time spent working in the public sector, alongside the state pension, amount to £42,000 a year.
This is boosted to £77,000 a year by part-time work, which is enough to fund their lifestyle. Christine used to work for HM Customs and Excise, while
Glyn worked in various roles, including the civil service and
“We’ve also been involved with Foresters Friendly Society for many years, which we joined in our teenage years, and we used to have our mortgage there,” says Glyn. “But it’s only latterly in semi-retirement that we’ve become more involved.”
Christine edits the in-house magazine and is secretary of a local branch, while Glyn does work at management level.
“We wanted to give back to our local community,” she says. Their involvement allows them to acquire new social and professional skills, organise community events and manage charity and fundraising initiatives.
They both took the maximum tax-free lump sum from their retirement pots.
“We used this to extend our home and pay off debts,” he says. “We also keep some aside in cash for a rainy day and we’re investing in a friend’s raw dog-food business too.”
Glenn Mousley, 65, is taking a flexible approach to producing a pension income and focusing on an active lifestyle.
He lives in a village near Canterbury, Kent, with his wife, Pamela, 60, who works as a homeopath.
“I’ve paid into personal pensions throughout my working life, and it was frightening to think of having to take an annuity with the rates on offer – so I’m relieved this isn’t something I’m stuck with,” he says.
Glenn has taken semi-retirement from his work as an events organiser to focus on other interests. “I’ve wound the business down, as a lot of my clients were a similar age and have retired, and circumstances within the industry have changed.”
He has taken a drop in income, but fortunately built up substantial capital within Isas, alongside various pensions to fund retirement. He has about £170,000 in an income drawdown plan with Hargreaves Lansdown, from which he draws about £9,000 a year.
In addition, Glenn has an annuity with a guaranteed annuity rate, from which he receives about £8,500 a year.
“This, alongside other savings and a bit of part-time work, is enough to live on,” he says. “I’m definitely making the most of the pension freedoms.”
He works part-time as a battlefield tour guide, taking students to the Western Front to tell them about the First World War.
“I also invigilate exams at the local university, organise road and cross-country races for a local athletics club, and I’m chairman of the local squash club and a parish councillor,” he says.
Glenn has a daughter of school age, but hopes that once she goes to university, he and Pamela can travel more extensively, and for longer periods.
“We like to go to different places – she wants to go to Transylvania, whereas I like Bali and India, for example, so we take varied holidays.”
He focuses on keeping life as active and varied as possible. “This has only been possible because I’ve been able to dip into my pension as and when needed,” he says. “I’m careful with how much income I draw, and leave as much as possible to carry on growing for the future. I see retirement as a way to take some money, travel and do the things you can’t when you’re working full-time.”
Tips for semi-retirement, from Nathan Long, senior analyst at Hargreaves Lansdown
Plan early if you want to reduce your hours – and if you want to join the throngs of people working part time in their 60s, make sure you check your options with your employer in advance.
The government is encouraging employers to retain and hire older workers, and you have the right to request flexible working. There may be more options than you think. Citizens Advice provides online guidance for enquiring about flexible working.
Use some of your pension to top up your income – reducing your hours at work is likely to mean a reduction in earnings, so you may need to use your pension to get the lifestyle you’re after.
You can access your pension from the age of 55 and new rules mean that withdrawals can be very flexible to meet your needs.
The order in which you access your pensions is important – if you put off receiving your state pension it’s guaranteed to increase, so deferring can be a sensible approach for people who are still working. For every nine weeks you defer, the government will increase your payments by 1%.
This works out at just under 5.8% a year. So if you were due to receive £164.35 a week from 65, but choose to wait until 66, your weekly payments will increase to £173.89.
The same is often true of final salary pensions, but the rate of increase varies from scheme to scheme, so be sure to check. Money purchase pensions aren’t guaranteed to increase, so you can’t be certain that putting off taking these plans will give you a higher payout.
You can take an income from your pension while you pay into one – starting to draw from your pension does not stop you from continuing to pay in.
This is important, as you should still be entitled to pension contributions from your employer if you’ve dropped your hours. However, if you’ve taken a taxable flexible payment from your pension, you’ll be limited to paying in £4,000 every year.
Lee lives with husband, Peter, 73, in Newent, Gloucestershire, where they downsized from their London home. They aim for a combined pension income of around £50,000 a year.
She’s “very happy” with her choice. “I draw as much as I can from this every year, before going into the higher tax rate, in two lump sums,” she says. “This works pretty well for me.”
So far, Lee says her pension pot has stayed “pretty much on an even keel, although it took a hit when the market fell recently,” she says.
“I check it every month to see how it’s doing and make adjustments where necessary – it’s fairly well balanced between assets, with 30% in income funds and most of the rest in equity growth funds, split between the UK, US, Europe and globally.”
She says she is very grateful she didn’t have to buy an annuity.
“I wouldn’t have wanted to do that in a million years – I’ve got Isas and some cash in ordinary savings too, so I’m not overly reliant on my pension,” she explains.
Peter, who ran a printing company, had managed to secure a decent annuity, principally because of ill health but also because he bought it before rates plummeted.
Among many interests, Lee is involved in her local history society. She also travels a fair bit.
“We both love wildlife and went to the US, to Yellowstone [national park], last February,” she says.
“We also have a second property bought a few years ago in Bristol, down by the harbourside, and we go there a lot – we know that we can always rent this out if we’re desperate for extra income.”
This first appeared in our sister publication, How to Retire in Style.
Could you please recommend a local financial advisor who would be able to help me with my small pension pot. I think you used to have a list of recommended advisors but I can't seem to see any? Many thanks.