Workers are changing jobs more frequently and leaving behind several pensions in the process.
Nowadays it’s becoming increasingly uncommon to stay in one job until you retire, with the average UK worker switching employment every five years. Each time you start a new job, you’ll most likely be auto-enrolled into a defined contribution plan, into which both you and your employer will pay a combined 8 per cent of your taxable salary as a minimum. This means most workers will have several pension plans during their career, so it’s important to understand the options you have to look after them.
Changing jobs introduces new challenges. At the beginning, it’s likely that your focus will be on learning the ropes and meeting new people. So, remembering to keep tabs on your pension plans — old and new — may be the last thing on your mind. The Association of British Insurers (ABI) estimates there’s £26.6bn sitting in unclaimed, lost, or dormant pension plans, meaning hard-earned savings are unspoken for.
By understanding what happens to your pension savings whenever you leave a job, you can be more proactive about tracking savings and make the most appropriate decisions for managing them now, and for your future.
What happens to my pensions savings when I leave my job?
Leaving your job doesn’t mean you lose the money that you’ve already invested into your plan, and whatever you have accumulated belongs to you. However, while your pension plan still exists, your ex-employer will no longer be paying into it after you leave, and any automatic payments you’ve been making will stop too. Your pension plan remains invested so has the opportunity to continue to grow in value, although it’s worth remembering that your investments could go down as well as up. You’ll keep paying charges too, meaning you could end up paying a different charge for each pension plan you have and charges also affect the growth of your plan. You may still be able to make your own payments to your pension plan, but you will need to arrange this directly with your pension provider — it won’t happen automatically. Importantly, this shows why it’s important to keep tabs on your pension and regularly check its value even if you are no longer paying into it. Many pension providers offer an app which means you can now review your pension from your phone.
It’s important to let your pension provider know if there’s a change in your circumstances, such as moving house. Doing so will make sure you still receive important communications, like annual statements or changes to your plan. Again, these updates can often be made online.
Can I set up a new pension after I leave my job?
Yes, you have plenty of options for setting up a new pension plan. If you’re moving into a new job immediately after leaving your old one, your new employer may set up a new workplace pension for you. This is then invested, and you get tax benefits on your pension payments too. You can increase the amount you pay in, and your employer may match this, so it’s worth finding out if this is an option.
If you’re not moving into a new job or won’t have access to a workplace pension for some time, it’s worth checking if you’re still able to pay into your old plan from your previous employer. If this isn’t possible, you still have plenty of options for setting up your own pension plan, all of which still receive tax benefits from the government:
- Personal pension – With a personal pension, you’ll make regular payments to help build up a pension plan, which is then invested into a range of funds. You can pick these funds yourself or your pension provider may have ‘ready-made’ options, making it a flexible choice for lots of people. How much you pay in and when is up to you, but you normally need to pay in a minimum amount every month or year.
· SIPP (self-invested pension plan) – If you’re looking for a pension plan that offers a wider pool of investment options, a SIPP might be right for you. You’ll need to be more comfortable with making investment choices from a wider selection and proactive in keeping an eye on your plan’s performance. Some investment options are only available if you have a financial adviser. You still make regular payments to a SIPP, but these generally have a higher minimum payment amount than other pension plans.
· Stakeholder pension – A stakeholder pension is ideal for those who want a straightforward pension plan with low minimum payments. Normally, you pick from a smaller selection of ready-made investment profiles or funds to invest your money into. Or, if you don’t want to choose, Stakeholder pensions also offer ‘ready made’ options.
How do I find a pension plan from a previous employer?
There are a few ways you can find lost pensions. The most obvious first step is to find the original paperwork from when you joined the scheme. If you don’t have these documents, another option is to get in touch with your old employers and ask them who your pension provider was when you worked there. However, perhaps the simplest way of finding your old pensions is by using the Government’s Pension Tracing Service. Here, you can track down both workplace and personal pensions by entering the names and addresses of your previous employers, or the names of your old pension providers.
Can I transfer my pension plans when I change jobs?
Yes, once you’ve found all your pension plans, you might want to consider bringing them all together by transferring them to your new plan. This can be beneficial for several reasons, such as:
- Less admin – Bringing your pension plans together means you only need to get in touch with one provider when your circumstances change, such as a change of address or contact details.
- Easier to track performance – With all your pension plans in one place, it’s much easier to see if you’re on track for the retirement you want.
- Lower charges – By transferring your pension plan, you could potentially benefit from lower charges from your new provider, such as lower fund management charges.
However, transferring other pension plans will not be right for everyone, and you could lose valuable benefits and guarantees. You need to consider all the facts before deciding if it’s right for you. It’s best to check with a financial adviser if you’re unsure.