Changing Jobs? Don’t Leave Your Pension Behind: 3 Crucial Tips
This article is for information purposes only, and should not be regarded as financial advice. With investments, your capital is always at risk. The value of your investment can go down as well as up, and you may get back less than you invest. Seek professional financial advice before embarking on any important investment or pension decisions.
If you’re about to start a new job, first of all – congratulations! Second, make sure you sort things out with the pension you’ve been contributing to.
Most of us nowadays will pay into a pension pot through a “defined contribution” pension scheme. Your employer will put money into this too – e.g. 3% of your salary, or higher.
Your (soon to be) old employer will continue to hold and be linked to this scheme after you leave your job. However, the money in it still belongs to you.
As financial advisers in Stamford, we have seen first-hand how much more mobile people are in their careers than they used to be.
It is quite likely, for instance, that you will have well over 10 different jobs throughout your lifetime. Young people might even has as many as 40.
So you could end up with lots of pensions like this. It would be easy to lose track of them, and the tens of thousands they might contain!
Of course, your money and benefits under each scheme are retained. However, it might well be in your interests to consolidate your various pensions into one pot. This can make it easier to manage and access your pension money.
In addition, as you start your new job, you can also make sure your pension works more smoothly going forwards:
#1 Retain – Or Step Up – Your Contributions
When you accepted your previous job, hopefully you considered the pension benefits as well as the overall package.
For instance, you likely had at least some idea of what you would be paying into your pension under your employer’s scheme, and what they would contribute. You probably also had an idea of how contributions to your scheme would be augmented by tax relief.
Therefore, now that you are changing jobs it is wise to at least continue putting aside the same amount of money each month towards your retirement.
You should even aim to make these contributions or savings higher. Remember, many employers will match what you put aside – up to a certain amount or percentage.
#2 Think About Pulling Your Pension Pots Together
You should take serious time to consider whether consolidating your pension pots is right for you. A financial adviser will be able to better help you evaluate your options in this regard.
Factors which can influence your decision to consolidate, for instance, include:
Weighing your various schemes’ benefits
Considering how important ease of pension access is to you
Looking at whether your pension investments can be made more cost-effective
Regarding the latter point, be aware that there are always costs involved when it comes to looking after your money, and investing it.
There will likely be annual charges, for instance. By speaking with one of our pension advisers in Stamford, we can help you discern the total costs you are incurring under your previous schemes, and determine ways to bring your costs down.
If you do eventually decide you want to bring everything into one place when you move jobs, you can do so by setting up a SIPP (self invested personal pension).
#3 Be Smart With Your Benefits
There are few different things to say here. Some are positive, others are not.
First of all, if you are thinking about leaving an old pension scheme and moving the money, then be aware that there will likely be a charge involved.
It’s important to look at what your scheme would charge you for leaving, compared to the value contained within the pot itself.
You should also weigh the collective “transfer values” of leaving all your previous schemes, compared to the benefits of combining the amounts into one pension pot.
Also, make sure you weigh up the benefits of each scheme you are thinking about leaving. You will likely not get them back once you leave them behind.
As financial advisers, we also like to draw attention to this little detail. If you have a pension pot containing less than £10,000, consider keeping it.
When you later start withdrawing from it, the current Pension Rules mean it will not count towards your Lifetime Allowance.