Changed jobs? A pension checklist
You’ve sent the handover email and said your goodbyes at the leaving drinks, but that doesn’t mean your connection to your old workplace has ended completely.
Maintain - or increase - your retirement saving
Ideally, you understood the pension benefits on offer from your new employer when you accepted the job. It is crucial to know how much you will be contributing, how much your employer will be contributing for you and how much these are boosted by tax relief. Contributions are usually expressed as a percentage of your salary.
If you’ve changed jobs, you should endeavour to maintain the cash amount that you save, and increase it if you can. Do the sums and work out if you need to increase your contributions from the default level that applies automatically. Fidelity offers different tools to help you work out various aspects of your retirement.
Some employers will match any increased contributions you make, up to a certain level. Take advantage of this generous benefit if you can.
Check the investment mix
Your pension pot is put into various types of investments, including company shares, and your pot at retirement is based on how much has been paid in and how well the investments have performed, less any charges.
There may be a choice about how your money is invested. Check your scheme to make sure yours is invested in line with your aims and attitude to risk.
The value of investments and the income from them can go down as well as up, so you may not get back what you invest.
Many see the attraction of consolidating their pots in one place while they’re still working so they can easily keep tabs on the size of their savings and how they are invested. This can be done by bringing pensions from previous employers into a self-invested personal pension (SIPP) that you set up, or perhaps into your current work scheme. Find out more about consolidation here.
Whether consolidating will work for you, and where you should do it, depends on a combination of factors, including the cost of investing, the benefits of schemes and the value you place on the ease of having all your pots in one place.
Wherever you hold a pension, there will always be some kind of charge for investing and administering your money and this will impact the level of your pension fund over time.
You should be able to find out the annual charges you are paying by contacting your pension providers. Once you know, compare them with the charges for investing via your chosen SIPP provider. Bear in mind that different SIPP providers have different charging structures so make you sure you understand all the potential fees you could be charged.
It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered. To find out what else you should consider before transferring, please read our transfer factsheet. If you are in any doubt whether or not a pension transfer is suitable for your circumstances we strongly suggest that you seek advice from an authorised financial adviser.
Don’t give up valuable benefits
Some pension schemes charge a fee if you transfer your retirement savings. This should be easy to find out and will become apparent if the ‘transfer value’ you are given is lower than the pot value. If an exit fee applies, you need to decide if you’re willing to pay this for the benefits of consolidating.
It is also very important to understand if your old scheme comes with any benefits that you will be giving up by leaving. An old scheme might allow you to take your money earlier, for example, or may allow you to buy a higher income in the future via a ‘Guaranteed Annuity Rate’ (pensions started in the 1990s and before are more likely to include these).
If an old scheme includes such features, you may lose these benefits by transferring your money.
Taking a pension pot of under £10,000 means you can continue contributing to a pension as you had been doing before. This is not the case if you have accessed taxable pension money from larger pots. In these instances, the contributions you can make to a pension are then limited to £4,000 under a rule called the Money Purchase Annual Allowance. In some circumstances it can be advantageous to have access to pension pots that, on their own, amount to less than £10,000. That’s because pension rules allow you to access pots of under £10,000 without triggering a test of the Lifetime Allowance - this is the total amount you can build up over your lifetime that will enjoy full tax benefits. If you go over the allowance you will generally pay a tax charge on the excess when you take a lump sum or income from your pension pot, but this does not happen when small pots are taken.
What do I gain by consolidating?
The great benefit of consolidating pension pots is that they become far easier to look after. Knowing with certainty the size of your pot means you can react if you feel you are not investing enough.
Having your pots in once place means you can manage the overall level of risk you are taking, and ensure that you are not over-exposed to one market or type of asset.
1Published 9 May 2016 : ‘Minister for Pensions, Baroness Ros Altmann said: People have had on average 11 jobs during their working life which can mean they have as many work place pensions to keep track of.’
Eligibility to invest into a SIPP and the value of tax savings depends on personal circumstances and all tax rules may change. Withdrawals from a pension product will not normally be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
Could your pensions be better together?
Find out more about how you could get your money working harder.