New job? Here are 5 things you need to know

Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Always check a company’s retirement rules, therefore, before signing on the dotted line.

2. Review your savings strategy

But what about your own contributions? How much should you be stowing away each month?

Some financial advisers recommend the ‘half your age’ rule: halve your age when you start making pension contributions and save this percentage of your salary throughout your working life.

So, if you start at 22, you might want to contribute 11% of earnings over the course of your career. If you delay starting a pension until 32, however, you will need to contribute around 16% of earnings for the rest of your working life to accumulate a similar sized pot.

Your new employer will do some of the heavy lifting here - but not all of it.

• Read: What’s the ideal monthly pension contribution at age 22?

3. Track down your old pension pots

If you’ve changed jobs several times, it can be tricky to keep track of what is saved where. Across the UK as a whole, there is £31.1 billion lying in unclaimed, inactive, or lost pension pots.²

When you start a new role, therefore, it makes sense to review what you already have. The government’s Pension Tracing Service is a very useful tool for this. You just need the name of your former employer or pension provider.

Next, it is worthing thinking about whether you want to bring your pots together. Consolidating your pensions can make it easier to review your savings, and cuts down on admin. In some scenarios, it can also result in lower fees.

Typically, you can combine your old pots into one Self-Invested Personal Pension (SIPP), which you manage yourself. Alternatively, you can merge them into your new workplace scheme.

• More on bringing your pensions together in one place

Be careful, though. It's important to understand that pension transfers are a complex area and may not be suitable for everyone. Always check whether you will lose any benefits by consolidating your pots. Some schemes offer loyalty bonuses, life insurance and early access to your savings, for example, which you could miss out on by transferring.

There is also no guarantee that transferring your pension will result in a higher retirement income.­

If you’re over 50, you can receive free advice from the government’s Pension Wise service. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 138 3944.

Our retirement specialists also provide free guidance to help you with your decisions. They can provide advice and help you select products too, though this will have a charge.

4. Beware of salary tax traps

New jobs often come with more money - and nobody complains about that. However, high earners risk falling into avoidable tax traps.

The 60% tax trap affects people who earn between £100,000 and £125,140 a year. On paper, these are run-of-the-mill, higher rate taxpayers. However, something strange happens when you cross the £100,000 mark: your ‘personal allowance’ - the £12,570 you can earn tax-free - starts to fall.

This effectively pushes up your tax rate, as shown in the example below.

Ben earns £25,140 more than Anna. He pays 40% tax on this extra income, which amounts to £10,056. Crucially, however, he also pays 40% tax on (what used to be) his personal allowance. This amounts to £5,028.

In total, therefore, Ben pays £15,084 in tax for the extra £25,140 he earns. Plug that into a calculator and you’ll find that’s a rate of 60%. Ouch.

These figures don’t include National insurance, and don’t apply to Scotland, which has slightly different rates.

One way to avoid this trap is to pay more into your pension via salary sacrifice. This essentially lowers your income, protecting some or all of your personal allowance. It can also reduce the amount of National Insurance you owe.

5. Check out lesser-known benefits

Some employers offer sweeteners, such as private health insurance, dental insurance, life insurance and critical illness cover. Other employee perks include cycle-to-work schemes, electric vehicle incentives and additional holiday buys, which are simple ways to reduce your tax burden.

Rules around parental leave, annual leave, flexible workings also vary hugely from company to company. Once again: research is key.

• Read: 7 investing rules of thumb
• Read: How to retire at 55
• Read: How might the government change pensions?

Source:

¹ Fidelity International, July 2024
² Pensions Policy Institute, 24 October 2024