So you’ve changed jobs. Whether it’s time for celebration or commiseration, there are a few loose ends you’ll have to tie up on your way out — and your pension is likely to be one of them.
With job-hopping becoming much more common than several decades ago, chances are you’ll have had more than one employer over your lifetime and paid into one or more workplace pensions. But what exactly happens to your old pensions when you do move on?
Keeping your benefits
Anything that you’ve paid into a pension scheme throughout your career is yours. Moving on to a different job won’t affect the benefits you’ve built up in your pot.
You can continue paying into the scheme if you want to, but you’ll miss out on any employer contributions that you might have been benefiting from (if it’s a defined contribution pension — more on that in a minute). If you don’t make any more contributions, your money will still stay invested.
In terms of when you can start taking your pension, you’ll have to wait until you reach the scheme’s pension age — typically 55.
Combining pension pots
Thanks to a new government initiative called automatic enrolment, as of 1 February 2018, every employer with at least one employee has to enrol all eligible members of staff into a workplace pension scheme.
Automatic enrolment applies to anyone working in the UK aged between 22 and the State Pension age and earning at least £10,000 a year.
This means that if you’ve moved onto a new job, you’ll be automatically enrolled into a new workplace pension unless you choose to opt-out of it.
In this case, it might make sense to combine your old pension pot(s) with your new one, particularly if it’s a lower-cost scheme with more investment options, so you’re making your money work that bit harder.
Merging defined contribution pensions is relatively straightforward. But if you’re transferring from a defined benefit pension to a defined contribution pension, it’s a little trickier.
Transferring from a defined benefit pension
A defined benefit (DB) pension is a salary-related, secure income for life. Your defined benefit pension will either be determined by your final salary before retiring or an average of your total career earnings.
A defined contribution (DC) pension, on the other hand, is made up of contributions from you and your employer throughout your career, and relies on how the invested funds perform.
If you’re on a defined benefit pension, it’s probably in your best interest to stay put. After all, it’s a fixed income for life. But with large incentives being offered by employers to transfer out of defined benefit pensions, more people are making the move each year.
In 2018/19, it’s estimated that 210,000 Britons transferred out of a DB pension scheme and, since 2016, the total value of DB to DC transfers has reached £60 billion.
Transferring out of a defined benefit pension is very complex — and irreversible. If you decide to take the plunge, you should be aware that you may end up with less in your pot that you predicted: defined contribution pensions are based on how your investments perform (not a fixed income), which is always uncertain.
In the wake of the increasing number of transfers, the FCA has just launched a package of pension-related proposals, including a proposed band on contingent charging for pension transfer advice, aimed to better protect those who choose to transfer out of a DB pension.
On the back of its worries that too many people are jumping ship, the FCA hopes that its consultation will “ensure people receive suitable advice and drive down the number giving up valuable defined benefit pensions when it is not in their interests to do so.”
For anyone that’s thinking of switching, you must seek advice from a regulated financial adviser if your DB scheme is worth more than £30,000. It goes without saying, though, that no matter what the size of your pot, you should always get advice from an expert before making a decision.
The average UK worker will have 11 jobs throughout their entire career, which could mean just as many pensions to track down. It’s also estimated that £400 million is currently sitting in unclaimed pension savings, so it's definitely worth checking.
Although you’ve moved on, any previous pension pots will lie dormant until you reach State Pension age, so you’ll have to track down all of the old pension schemes you might have been contributing to throughout your career.
Most pensions that you’ve ever contributed to should send you an annual statement. If you aren’t getting them anymore, it might be down to something as simple as moving house.
Your best bet is to contact the pension provider directly (if you remember who it was), your previous employer with who you had the pension, or if all else fails, to use The Pension Tracing service. You’ll need to have some details to hand, like your National Insurance number and the dates of your employment, to help trace your old pensions.
Keeping your pension beneficiary up-to-date is something else you shouldn’t forget about. In the event of your death, your pension savings typically go to the person you’ve nominated. As you may have done this several years (or even decades) ago, you might be surprised to find out who your old pension savings are actually going to end up with, should the worst happen. So if you don’t want your pension being left to an ex (!) it’s a good idea to check and make sure you’re happy with who you’ve chosen.
Prioritise your pension planning
Pensions come with attractive tax relief that make them a staple of any portfolio.
As with any investments that you hold, you should regularly check with your existing providers to make sure you’re aren’t paying any unnecessary charges and that your pensions are invested in line with your goals and your risk appetite.
(If you’re only a few years away from retiring, for example, you probably won’t be comfortable having a pension that’s invested exclusively in the volatile stock market.)
If you want to retire when and how you’d like to, staying on top of your pension should be an integral part of your broader financial planning. Don’t leave any nagging questions unanswered.
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