Changed jobs? A pension checklist
Important Information: The value of investments and the income from them can do down as well as up, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. 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.
Just because you’ve left your old company, doesn’t mean you should leave behind your old pensions. These pots of money still belong to you and can have a big impact to the value of your retirement savings in the long term. It’s therefore important to ensure you’re not only saving enough in your current pension but also keeping your old pensions in shape.
Here’s a five-point checklist for you to consider.
1. 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.
Just a 1% difference in contribution could make a significant difference to the size of your pension pot when you come to retire, due to the powerful effect of compounding. This is when you earn interest on top of interest, making your savings grow even faster.
For example, a 30 year-old today earning £30,000 could contribute an extra 1% of their salary and then retire at age 68 with an extra £55,345 in their retirement fund. This example assumes that wages will grow by 3.75% and that the return on invested contributions is 5% after fees1. Read how we made our assumptions here. Remember, it’s never too late or early to make a difference to your pension.
Some employers will match any increased contributions you make, up to a certain level. Take advantage of this generous benefit if you can.
2. 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. It's important to check your scheme to make sure yours is invested in line with your aims and attitude to risk.
Research by the FCA shows that only 16% of UK adults2 selected where their pension contributions were to be invested themselves. This means the chances are that your old pension savings are sitting in the default funds that each of your pension schemes offer.
These days that’s likely to mean large ‘vanilla’ funds which invest across both shares and safer bonds - but there can still be big differences in how each default fund splits your money, and such differences could have a big impact to the value of your pot in the long term. Different approaches can be correct but they may no longer suit you.
What’s more, you’ll only know if a pension pot is invested correctly for you, if you know how all your other pots are invested as well. A riskier approach in one pot might be fine if you’re being cautious elsewhere - but it’s hard to know that when you have pots in several places with little oversight from month to month.
The problem can get more acute as you get close to retirement because you may wish to move you money into safer assets that have less chance of sudden falls in value.
It’s why more and more people are choosing to consolidate all of their pensions together in a Self-Invested Personal Pension (SIPP), where in a single online account you can see what you have saved, and where.
3. Consider consolidating
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). Find out more about consolidation here. Please note, if your employer is paying into a current workplace pension, you should leave that pension where it is or you may lose contributions from your employer.
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.
There is typically a service fee, usually a percentage of the money you have invested, payable to your pension provider which covers the administration of your contributions. In addition you’ll pay a separate fund management charge for each of the fund providers you invest your money with. Different providers may charge different amounts for the same fund because they sometimes negotiate discounts from fund providers, which they pass on to customers. So when comparing service fees, make sure you compare the fund charges too.
4. Don’t give up valuable benefits
Make sure that you check the details of your old schemes before you give them up. Some old schemes may have valuable benefits that will be lost if you transfer away - for example, early retirement options or final salary guarantees. If this is the case, it’s probably not in your best interest to transfer.
5. Keep on top of your retirement savings
It’s important to keep track of your retirement savings to make sure you’re saving enough for the future you want.
Fidelity’s retirement guidelines can help you understand how much you’ll need to enjoy a retirement that meets your expectations, including what’s a sustainable withdrawal rate at retirement.
The great benefit of consolidating old workplace pensions into a SIPP is they become easier to look after. Knowing with certainty the size of your pot means you can react if you feel you are not investing enough, and ensure that you’re not over exposed to one market or type of asset.
Fidelity’s low cost SIPP, for example, offers a wide investment choice, flexible income options at retirement and plenty of guidance and information along the way. These include easy to use investment selection tools and retirement planning calculators to help with various aspects of retirement planning - from how much you need to save, to what might be the right income option for you when it comes to accessing your pension.
Fidelity’s call centre is also on hand to offer you guidance and support. Just call 0800 028 1819. Lines are open Monday to Friday 8am to 6pm and Saturdays 9am to 2pm.
1Source: Fidelity December 2019
2Source: FCA Data Bulletin Mar '18
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 recommend that you seek advice from an authorised financial adviser.
Be ready for whatever life may bring
Find out more about the benefits of bringing your pensions together in a Fidelity Self-Invested Personal Pension (SIPP)