When you change jobs, you will usually leave that respective pension scheme. So what happens to my workplace pension when change jobs and leave my employer.
With each employment that you have, you are now normally enrolled into a workplace pension. Which is known as Defined Contribution (DC). Whereby you and your employer will make monthly contributions through payroll deductions.
On leaving such employment, your contributions and those of your employer will normally end.
You do still remain in control of that pension pot in future. But normally no new funds are allocated into that pension plan.
So what are my options moving forwards !
- it stays invested in the current funds and investments with that pension provider
- Your contributions will cease on leaving that employment
- the amount in the pension will continue to go up and down in value
- it will remain subject to ongoing fees and charges
- you could transfer to new workplace pension, known as consolidating
- or dependent upon your age you could access, if over age 55 the current Minimum pension age (MPA)
Some key things to consider ahead of possibly moving or accessing !
- Are my current fees and charges competitive or expensive
- what is the selected retirement date or default age with that pension
- does it have any special features or benefits attached to it. Most schemes now are relatively simple, but older pots will offer GAR’s (if buying an annuity). Or it is invested in with-profits which pay an annual bonus each year and terminal bonus on maturity.
- Am I limited in the type or number number of funds that I can invest in. Most people in workplace funds have limited options and are automatically put into default or lifestyle funds based on your age.
What if it’s a final salary (DB pension) !
These type of schemes are usually offered by large employer’s. They are somewhat rare at present unless you work for the Civil Service, Teaching, NHS, Local Authority.
As the risk is burdened by the sponsoring employer, they have simply become unaffordable for most employers.
A scheme may have closed down several years ago, but the company still has to honour benefits already accrued at great expense to them.
The level of pension income payable on retirement at normal retirement date (NRD) is guaranteed and based upon salary, length of service and accrual. It will pay you an annual income for life, with annual pay increase set by the Trustees running that pension fund. Plus a spouse’s pension normally 50% payable for the rest of their life.
If you do decide to transfer out his type of pension, you have to attain a cash equivalent transfer value (CETV), which is normally valid for 90 days. If it runs out you can get another, but it could be higher or lower. This figure is calculated and set by the scheme actuary.
But be aware, it the value is over £ 30,000 the you will have to use a regulated Financial Adviser to authors the transfer out.
Which could be quite costly and time consuming, it’s a requirement that the trustees will need to see written approval, ahead of transferring funds out.
Once you transfer funds out, you lose guaranteed and defined benefits on offer. It does give you flexibility moving forwards but the risk of managing the funds goes from the employer onto you to control and access and buy anew product in future.
Let’s look at my options in greater detail !
Leaving the pot invested:
If you leave the pot invested, it will still remain within the current funds. Most possibly a default fund of lifestyle fund, with the aim that the pot will become less riskier and volatile as you get nearer to retirement. This is based on the default age, when originally set up. It could be at 60 or 65 or linked to state pension age, but you can usually access it anytime over age 55.
The pot will remain income tax free, dividend tax free and IHT free within the pension wrapper under current rules. But you should consider how are the respective funds performing. Are they beating the market each year and producing positive returns, or it the fund constantly losing value each year.
Most people will look at there current value ad-hoc or reading the annual statement. They will just see a figure, it it goes up in value then great. If the pot goes down in value then not so great but most people just see a headline figure. They have no idea where the funds are invested and how those funds are performing against other schemes.
So make a conscious decision to get actively involved with your pensions.
What about fees and charges:
Your pension scheme will be subject to ongoing fees and charges, and these will will be payable even if you leave that pension plan. Most AE schemes are simple now and the fees are usually very low and capped to 0.75% each year. So check your annual statement to see what overall management, dealing and account charges are applicable.
What effect does this have on your scheme moving forwards. If you have a relatively small pot will it be eroded by fees and charges if no new contributions are going to be added.
What happens if my company closes down the current pension:
It is sometimes common now, in that an employer may close down its existing pension scheme every few years. With the aim of shopping around and setting new pension provision for employee’s with a new provider at reduced or lower costs and fees.
They will do some kind of beauty parade and search across providers on your behalf. If they have lots of employees they may get a reduced rate due to economies of scale. So you could create a new pension through no fault of your own. Such as dormant scheme and new active scheme which you are now contributing to.
What happens to my pension, if I am sacked or made redundant:
If you happen to lose your position or job through being sacked or made redundant, they you will leave that pension scheme on the date you leave that employer. Normally your last contribution will be deducted from payroll and invested accordingly, but contributions will cease in future.
The funds will remain invested in the pot and be subject to ongoing fees and charges, but no new contributions will be allocated and invested. You don’t lose the right to that pension as it is an agreement between between you and the pension provider directly. It will remain safe and usually written in trust under the umbrella of the pension provider.
Can I still make contributions if I leave a scheme:
This is depend upon the type of scheme you have and the arrangements with the pension provider. Most schemes will consider tit a clean break and contributions cease immediately on leaving that employment.
You can sometimes carry on contributing directly through a standing order or direct debit. But your old employer will no longer contribute to that scheme.
So check directly with the pension admin team, and you can pay into a pension scheme until age 75 and receive tax-relief. You currently have an annual allowance of £ 60,000 per tax year or lower amount if your salary is less. (up to your current salary)
What happens if my employer goes bust or closes down:
Your pension funds will remain safe and secure within the pension companies assets. It is usually ring fenced and written in trust. It should be totally separate to any links or association with the common that has failed. They were only responsible for offering pension scheme and deducting and passing funds onto pension company through legal obligation via the payroll or PAYE.
If you had an old DB pension they will normally be picked up by the PPF (http://www.ppf.co.uk) or FAS system.( https://www.fasmembers.org.uk)
Is it worthwhile to consolidate numerous pensions:
In the past people seemed to have jobs for life, but now people change jobs on a regular basis. this could be for numerous reasons, to get better job position, pay increase from new employer, career change, redundancy, relocation etc.
So it could soon be apparent, that you could have a selection of workplace pension across numerous different pension providers. As each employer will use different pension companies.
Are you able to manage and control lots of different pots but up over your working career. Or does it become stressful and a lot of hassle to manage several pots. Which could be across lots of different companies you have to mange either via an APP or online account, involving many passwords.
Could you simplify you’re admin going forwards by consolidating. So review fees, charges, default age, special features ahead of possibly transferring.
A transfer could be completed in a few weeks, by speaking to your provider they will do it automatically using a specialised transfer system in place. Nowadays, there is normally no need to use a 3rd party or IFA to assist you. But ask specific questions, so you don’t get any undue shocks or surprises.
This could prove quite be beneficial, in future years when you decide to access. i.e buying an annuity or drawdown (FAD) as you won’t have to buy numerous products with several providers.
You may not want all your eggs in 1 basket with the same provider. But you should consider the idea of reducing your over all number of pots somewhat.
How do I find any missing pensions from previous employers:
You could speak to the HR department for that employer or contact ex-colleagues who may have details and contact number soft that particular scheme.
You should have received annual statement from them by law, or had access to online account, APP or pension portal.
If you have totally lost your pension, you could use the free service on gov.uk called the Pension Tracing Service. Given them basic details such as name, DOB, NI number and respective employer. They could find it on your behalf within a few weeks.
http://www.gov.uk/find-pension-contact-details
It does happen quite regularly, especially of your remarried, divorced, moved house and nit updated your personal details. Or it may be an old SEPS pot from the 1980’s which was your 1st job and forgotten all about.
Am I able to access my old pension:
As long as you are over aged 55 (current MPA) or age 57 from 6th April 2028, you can access a pension plan. It could even be aged 50 if you have ill-health or protected age.
You could use the funds to buy an annuity, a guaranteed income for lifetime or fixed term period, drawdown (FAD) a flexible income until the pot runs out of money, or number of lump sums (UFPLS).
So speak to your provider about the options available, you could check out my other posts on those options available to you being:
- https://moneyminted.co.uk/what-is-an-annuity
- https://moneyminted.co.uk/what-is-flexible-retirement-income-pension-drawdown
- https://moneyminted.co.uk/how-to-access-your-pension-by-a-number-of-lump-sums
Could I set up my own pension plan:
If you wish you could set up your own pension provision or arrangement if you feel confident to do so. It should be a simple process to complete, after doing some initial research.
You could set up your own personal pension, or Self invested personal plan (SIPP) whereby you can pick your own funds and investments. These types of products will give you a lot more investment choices and options.
Most SIPP providers have great websites and lots of investment tools to help you. It may appear daunting but it should have to be that way. As long as you do your own research, it can be a rewarding exercise, whereby you control your own funds moving forwards.
So check out the following providers to help you:
Lots of other companies are available, so compare fees, charges, help and guidance on offer through their platform or website to assist you.
Remember:
If you found this blog post useful and informative, please feel free to check out my other posts on pensions, savings, investing and investment books that I recommend on http://www.moneyminted.co.uk, so you to can improve your investing knowledge.
The world of saving and investing, should be very rewarding but you can reach your financial goals and dreams if you think long term and invest within tax free wrappers.
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