GUIDE TO

RETIREMENT
FOR UNDER 40s
IMPORTANT INFORMATION
We hope you find this guide helpful but it isn’t personal advice. Information is correct
as at 22 March 2022, and all allowances and tax bands mentioned apply to the 2022/23
tax year, unless stated otherwise. If you have any doubts about the suitability of an
investment for your own circumstances please seek expert advice.

You can’t usually access a pension until age 55 (rising to 57 in 2028). All stock market
investments can fall in value as well as rise, so you could get back less than you invest and
you should regard them as long-term investments. Tax rules can change and the value of
any benefits will depend on individual circumstances. Past performance is not a guide to
future returns.
IT’S NEVER TOO EARLY TO
START PLANNING YOUR
FINANCIAL FUTURE
In your younger years retirement probably
seems a long way off. And with other priorities
on your mind, like saving for your first home, or
providing for a young family, it’s easy to forget
about saving for retirement. But it’s still a
priority that needs your attention.
Our research suggests only 40% of all
savers are on track to achieve an adequate
retirement income. If you don’t give yourself
enough time to save, it could mean you’ll end
up retiring later than you want. Or you might
be forced to sacrifice the lifestyle you enjoyed
while working.
But don’t panic. Thankfully you have time on
your side, and if you make the right moves
now, you could still have the retirement
you’ve dreamed of.
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 CASH VS INVESTING IN THE
STOCK MARKET
The benefits and risks of both.
Both saving and investing allow you to put
money aside now, for the potential to have
more in the future. But with cash offering
little growth potential, cash savings tend to
be for short-term goals and used as an
emergency back up, whereas investing is
for the longer term.
When saving for retirement, no matter
their age, many people choose to invest in
the stock market. Historically the market
has outperformed cash and you’ve usually
got time to ride out any short-term falls to
hopefully end up with overall growth.
If you choose to invest you’ll need to be happy
to tie up your cash for at least 5 years, so make
sure you’ve got a cash buffer first. This will
allow you to easily withdraw money if you need
it. In an ideal world you should have a minimum
of about 3-6 months’ worth of expenses
in cash to cover emergencies. You could
consider paying into an easy access savings
account. It might mean you’ll get a better
return on your cash.
MORE ON CASH
SAVING WITH HL

Remember, past performance isn’t a guide

to future returns.

THE BASICS ABOUT INVESTING

Investing essentially involves putting your
money into different investments and asset
types with a view to generate an income and/
or make a profit. It can help you to grow your
money over the long term, but unlike cash,
investments can fall as well as rise in value, so
you could get back less than you invest.

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5
 GOT A PENSION THROUGH
YOUR WORK?
Then you’re already an investor. Make sure you
know how your investments are doing and
if your retirement pot is on track.
Paying into a pension
Thanks to auto-enrolment, millions of us are
saving into a pension for the first time. If you’re
employed, it’s likely you’ll already have built up
some money in a workplace pension. In most
cases employers must automatically enrol
their employees and pay into a pension on
their behalf.
You’ll also be required to pay in some of your
salary (unless you’ve opted out). It could be
worth talking to your employer to find out
how much you and they are paying in. If you
increase your pension contributions they
might pay in more too.
For every contribution you make to a pension,
the government will pay 20%, boosting the
amount of money you’ve saved. This extra
boost from the government is called basic-
rate tax relief.
Everyone who’s a UK resident for tax purposes
and under 75 qualifies for basic-rate tax relief,
even children and other non-taxpayers. There
are limits to the amount you can pay into
a pension and qualify for tax relief. You can
normally pay in as much as you earn, or
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£2,880 if you’re a non-earner (with 20%
tax relief added on top). There’s also a cap,
usually £40,000 per tax year, which is the
maximum both you and your employer can
pay in across all pension schemes. Anything
over this annual allowance will be subject to a
tax charge.
Basic-rate tax relief is usually added to your
pension automatically. Your pension provider
claims it for you from the government, and
adds it to your pension.
If you pay higher-rate tax (40%) you can claim
up to a further 20% in tax relief through your
tax return or local tax office. Additional-rate
taxpayers (45%) can claim back up to a further
25%. You must pay enough tax at the relevant
rate to claim back the full amount.
For example, say you wanted to make a £1,000
contribution to your pension. You’d only need
to pay in £800, and the government would pay
£200 of basic-rate tax relief into your pension.
Higher-rate taxpayers, could then claim back
up to a further £200, or £250 for additional-
rate taxpayers. Tax rules can change over
time, and any benefits will depend on your
circumstances. Tax rates and bands are
different if you’re a Scottish taxpayer.
Our tax relief calculator can help you work
out how little your contribution could
effectively cost you.
TAX RELIEF
CALCULATOR
Investing in a pension
Lots of workplace pensions are invested in
a “default fund” – a one-size fits all scheme
which usually makes investment decisions on
behalf of members according to their age.
Although there’s a lot to be said about
choosing your own investments, a default
fund can be good for some people. Firstly, one
advantage is that your pension contributions
are invested as soon as you or your employer
enrols you into a scheme.
Once invested, the fund is managed for
you right from that moment until you retire,
meaning you don’t have to do any of the hard
work or have the pressure of choosing your
own investments.
Many default funds tend to be pooled by age,
so when you’re younger and at the beginning
of your career, you’ll likely have a medium risk
portfolio. Then, gradually as you get older,
the fund manager will start to de-risk your
portfolio on your behalf.
Pension calculator
Is your pension on track?
Find out now with our
pension calculator
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 The longer you
delay, the more it
costs you to build
a good-sized pot.

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THE SURPRISINGLY BORING SECRET
TO A COMFORTABLE RETIREMENT
Discipline. Save as much as you can, as early
as you can.
Saving and investing early gives you more
chance of retiring on your own terms. You
might want to consider building another pot
alongside your workplace pension or if you
haven’t saved anything yet, now might be a
good time to start.
The longer you delay, the more it costs you
to build a good-sized pot. This is because
of compound growth, which Albert Einstein
reportedly called “the most powerful force in
the universe”.
Compounding is your most powerful tool in
investing, but it can be the easiest to overlook.
Getting your head around it is the hardest part
– after that, it does the work for you.
In a nutshell it’s the classic snowball effect
– the amount you start with may be small,
but once the ball starts rolling, it can grow
significantly over time.
Regularly investing a small amount of money
each month, letting any increases build upon
themselves, and not touching it for the long-
term takes patience – but the results could
really pay off.
Let’s say you invest £5,000 and it grows by
5% per year (after charges), your investment
would be worth £5,250 at the end of year
one. By the end of year two, your investment
would be worth £5,512 since you would have
benefited from growth on your initial £5,000
investment, and growth on the £250 gained in
year one.
Although compounding aims for long term
growth- it doesn’t come without risks. Your
investments can fall as well as rise in value, so
you could get back less than you invest.
COMPOUNDING – IT DOES THE
WORK FOR YOU
The best thing about compounding is that
you don’t really need to do anything to benefit
from it once you start. In fact, it works best
when you do nothing. So long as you regularly
check your investments are diversified
enough, and still in line with your goals, time
will do the work.
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 TRY MONTHLY INVESTING
By setting up a direct debit into your
chosen investment account, the money is
automatically taken from your bank account
each month and invested wherever
you choose.
This approach to investing can help balance
your risk. Buying and selling investments at
exactly the best time on a regular basis is
incredibly difficult, if not impossible.
When investing a lump sum, investors are
committing all their money to the stock
market in one go. If their investment choice
rises, they’ll reap the full benefit of the
increase. But if prices fall, they’ll also feel the
negative effects to the highest degree.
It’s more likely that the average investor will
follow the herd and buy more when the market
is rising, and less when it’s falling. This is human
nature, but will inevitably lead to worse returns
in the long run. By investing small amounts
each month, investors average out their ‘buy
price’, and somewhat flatten the ups and the
downs as investments rise and fall.
Just take a look at the table below- monthly
investing could really pay off in the long run.

THE IMPACT OF INVESTING EARLIER

INVESTMENT PER
MONTH (5% GROWTH) 20 YEARS 30 YEARS 40 YEARS
AFTER CHARGES

£100 £40,745 £81,869 £148,856

£250 £101,864 £204,674 £372,141

£500 £203,728 £409,348 £744,282

This table is just an example. In reality investments rise and fall in value, so you could get back
less than you invest. Inflation can also reduce the spending power of money over the long term.

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WHY INVEST MONTHLY? price, and other times it could be lower – but
you won’t have to worry about the timing.
• It takes the emotion out of your decisions
Over time, these ups and downs tend to
The stock market will always go up and
average out.
down, and you’ll always want to buy when
the price is low, and sell when it’s high.
• It’s good investing discipline
Investing automatically gets you out of the
Setting aside money automatically makes
mindset of wanting to ‘time the market’
it easier to get into good habits. You won’t
(which is virtually impossible).
forget to invest, because it happens at the
same time every month, and any growth will
• Y
 ou’ll benefit from ‘pound-cost averaging’
compound upon itself. Leaving the money
Investing automatically helps smooth
alone can be hard, and takes patience, but
out the bumps in the market, taking the
the results can really pay off over time.
emotion out of your choices and spreading
your money across different market
conditions. Sometimes, you’ll buy at a higher
FIND OUT MORE ABOUT
INVESTING MONTHLY

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 HOW TO CHOOSE INVESTMENTS
Your attitude towards risk and how comfortable
you are making investment decisions will
probably determine how you build your
investment portfolio.
PICK YOUR OWN INVESTMENTS
If you’re going to choose your own
investments, it’s important to remember that
diversity is key. Different types of investments
and sectors perform well at different times,
and so do different stock markets around
the world.
While investment risk can’t be eliminated
altogether, making sure that your portfolio has
a good variety of investments across a range
of assets, regions and sectors can help shelter
you when some areas don’t perform as well
as others. Fund managers also use a variety of
strategies and favour different asset classes
(even if their funds have similar objectives).
At different times, in different market
conditions, some managers will outperform
others. To help spread risk, you could consider
choosing a number of fund managers so
you’re not relying on a single approach or
asset class to be successful. Our fund shortlist
could help get you started.
SEE OUR SHORTLIST
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CHOOSE A READY-MADE PORTFOLIO
If you’d prefer an expert to choose and
manage investments on your behalf, you
might consider a ready-made portfolio. You
can select from a range of options, based on
your investment goals and attitude to risk.
For example, you might be an adventurous
investor, comfortable with risk, and choose
a portfolio that focuses on higher risk and
growth areas to maximise returns. If you’re
more cautious you may choose a more
conservative portfolio. This might mean
slower growth, but could offer more stability
and peace of mind.
You won’t need to do any of the day-to-day
management, but you’ll need to keep an
eye on the portfolio you choose as time goes
on, and make sure the aims still match your
own goals.
MORE ON READY-MADE
PORTFOLIOS
INVESTMENTS
Bonds
Bonds are loans to companies and

EXPLAINED
governments. They’re listed on the stock
exchange and trade like shares.

Investment trusts
Funds
Investment trusts are similar to funds, but
A fund is a collection of investments,
they’re listed as companies on the London
chosen and run by a fund manager.
Stock Exchange, so they trade like shares.
Each fund manager has an objective, for
example to grow your capital, or provide
Exchange-traded funds (ETFs)
a decent income. When you invest in a
ETFs are a type of fund that tracks a stock
fund, you’re buying a slice of the fund’s
market or commodity. Even though they’re
investments. Funds can be invested in
funds, ETFs are listed investments, so they
many different types of asset, like shares,
trade like shares.
bonds or property. Some are focused on
just one type, and some a mixture.
Cash
If you don’t want to invest straight away,
Shares
you can also hold cash in an account
A share represents part-ownership of
and choose to invest it later on when
a company. When you buy shares you
you’re ready.
literally own a ‘share’ of the business.
 TAX-EFFICIENT ACCOUNTS TO HELP
YOU SAVE FOR RETIREMENT
After all, the less tax you pay, the more money
you’ll have in retirement.
When saving for retirement, it makes sense
to reduce taxes whenever possible. There are
some tax-efficient accounts which could help.
SELF INVESTED PERSONAL
PENSION (SIPP)
A pension is normally the first port of call when
saving for retirement. It’s typically the most
tax-efficient way you can save because the
Government offers you a helping hand.
When it comes to choosing a personal
pension, we believe a SIPP offers by far the
most exciting opportunities for investors. It’s
a type of pension that lets you take control of
your retirement money and investments.
Anyone can start a SIPP. Whether you’re
a contract worker, business owner, self-
employed or simply looking for flexibility when
managing your retirement savings, it could be
the right pension plan for you.
Once you add money to a SIPP it has the
chance to grow free from UK income and
capital gains tax. You also have the freedom to
invest almost anywhere you like, and can
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often choose from ready-made investment
portfolios or pick your own individual
investments. Investment choices could include
funds, shares, investment trusts and more. You
can change your investments as and when you
like and when you’re age 55 (57 from 2028),
you’re free to start withdrawing money.
You can usually take up to 25% of your pot tax
free. The rest of your withdrawals will be taxed
as your income.
Remember though, with the freedom and
flexibility of a SIPP comes more responsibility
and, as always, there’s risk with investing. The
value of your investments can go down as
well as up, so although there’s the potential
for growth, you could get back less than you
put in. This is why you need to be prepared to
regularly review your investment performance
and make your own decisions.
MORE ABOUT SIPPS
STOCKS AND SHARES ISA
An ISA (Individual Savings Account) offers
another popular tax-efficient way to invest for
retirement. The best way to think of an ISA is
as a ‘wrapper’ in which you can shelter your
investments from tax. And although investing
should be considered for the long term, you
can take money out whenever you want.
You can shelter up to £20,000 in ISAs each
tax year. This gives you a chance to build
a substantial retirement portfolio in a tax-
efficient account.
Within a stocks and shares ISA, you have the
freedom to invest in funds, shares, investment
trusts and much more. But you’ll also benefit
by saving tax. You’ll pay no capital gains or UK
income tax on your investments and you don’t
need to declare ISAs on your tax return.
Remember tax rules can change and
the benefits will depend on individual
circumstances. Investments can fall as well
as rise in value so may not get back what
you invest.
MORE ABOUT STOCKS
AND SHARE ISAS
LISA (LIFETIME ISA)
A Lifetime ISA is a flexible way to save and
invest specifically for your first home or later
life. It can be a great complement to a pension
to help you save towards retirement. You
can open one if you’re between 18 and 39
years old.
You can choose to save cash or invest in the
stock market, and you’ll also get an incentive
from the Government. For anything you pay in,
they’ll add an extra 25% on top, up to £1,000
a year.
Your money will also have the chance to grow
free from UK income and capital gains tax.
You’ll be limited to paying in up to £4,000 each
tax year, until your 50th birthday. Then you can
no longer make contributions. You’ll be able to
withdraw the money without penalty to help
you buy your first home, or after you turn 60.
There is a bit of a catch. If you withdraw money
from a LISA before age 60 and it’s not to
buy your first home, you’ll usually pay a 25%
government withdrawal charge on anything
you take out. This could mean you end up
getting back less than you put in.
In a lot of cases, a pension will be the better
option when saving for retirement. You’ll get
a higher boost from the government and you
could get an extra top up from your employer.
MORE ABOUT LISAS
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 WHY HL
We offer a range of different accounts to
help you reach your goals, including a SIPP,
Stocks and Shares ISA, Lifetime ISA , as well
as a Cash ISA and savings accounts through
our Active Savings service. You will also
benefit from:
WATCHLISTS
If you choose to invest with HL, you can use
our watchlists to track the performance of
funds, shares and other investments. This
could help you decide if an investment is right
for you.

Control – you can check your account


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and investments 24/7, online or using
the HL mobile app
FINANCIAL ADVICE
Investment freedom – pick your own

If you would like financial advice tailored to
investments, choose from our ready-
your personal situation we can help. Our
made portfolios, or pay an adviser to
team of fully-qualified advisers offer both
select your investments for you
telephone and face-to-face advice.
Support when you need it – from our

Bristol-based Helpdesk, six days a week
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Ability to invest with confidence

– we’re a secure FTSE 100 company and
the UK’s No. 1 investment platform for
private investors
GET IN TOUCH
Expertise – we provide research, ideas,

www.hl.co.uk
and updates to help you with your
investment decisions 0117 980 9926
enquires@hl.co.uk
GUIDES AND ONLINE TOOLS TO HELP
We provide share insight and other fund
Hargreaves Lansdown
research to help you make your
One College Square South
investment decisions with confidence.
Anchor Road
Bristol BS1 5HL
We also offer investment guides and online
tools which may be useful too.

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THE HL
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 Hargreaves Lansdown 0117 980 9926
One College Square South enquiries@hl.co.uk
Anchor Road Bristol BS1 5HL www.hl.co.uk

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