What should I do with my workplace pension when moving jobs?
When you move jobs, the important thing is to remember the details of the pension you had with your previous employer.
Keeping track of old workplace pensions makes it easier to see how much you’re building up in your pension pot/pots.
Most people will have a defined contribution workplace pension, and we’ll focus on this type of pension.
If you happen to have a defined benefit workplace pension, the default guidance is to leave it where it is until you pension provider allows you to access the money. This is because of the valuable benefits this type of pension offers.
In terms of your options with old pensions, there are a few things you could do:
Option 1: Leave your old pension where it is
Doing nothing with your old pension is an option. Just make sure you keep the details safe so that you can easily find it later when you need to. At the very least, make a note of the pension provider and your account number.
Unfortunately, as many of us move jobs more than once during our career, the ‘do nothing’ option can actually end up leaving you with a lot of admin in years to come.
And with over £19 billion sitting in lost pensions, keeping track of old pensions may be harder than you think.
Option 2: Transfer your old workplace pensions into your current workplace pension
If you’ve moved to a new employed role (as opposed to self-employed), you will automatically enrol into a new workplace pension.
A workplace pension can usually receive transfers in from other pensions. So, you might want to consider transferring your old pension to your new one. This makes it easier to manage, with all your pension funds in one place.
Option 3: Open a SIPP
You could open a Self-Invested Personal Pension if you wanted to take a more hands-on approach with your old pensions going forwards. And you can have a SIPP alongside your current workplace pension.
Option 4: Transfer your new workplace pension into your old workplace pension
Just because you move jobs, it doesn’t mean you can’t keep paying into the pension you had with your old job. Your old employer won’t be making any contributions into it anymore, but the pension is still open and able to accept payments into it.
This option is less common, and for somebody wanting to take a more hands on approach with their pension. There could be a variety of reasons for using this option.
Things to think about when deciding what to do with your old pension
Higher pension charges eat into your returns.
Comparing the costs of your pensions can have a big impact on the long-term value of your pension.
As an example, a difference of 0.5% vs 1% fees a year on a pension worth £20,000 could mean a difference of nearly £5,000 in 20 years’ time, based on average returns of 5% a year.
In fact, if you happen to have a very old pension, you may find fees are a lot of higher than newer ones. Pension fees have come down over time as more pension providers have entered the market.
The provider of your old pension may charge a transfer fee if you move it to your new pension.
There are a couple of rules for certain pensions:
- If you’re transferring a pension after the age of 55, fees are capped at 1% of the value of the pension transfer
- If you open a new plan, you can’t be charged a transfer fee at all
If you’re in any doubt about potential fees to move your pension to another provider, double check.
Loss of guaranteed benefits
Less common for newer pensions, you may have a guaranteed or enhanced benefit on your old pension. This could be something like enhanced tax-free cash or a Guaranteed Annuity Rate.
When you transfer a pension with guaranteed benefits to a new provider, you may lose your right to these benefits.
Again, a simple question to ask your pension provider is ‘Will I lose any guaranteed benefits if I transfer’?
Investment choice and attitude to risk
When you move jobs, your new pension provider will probably put you in what’s known as a ‘default fund’. This is an investment that matches the level of risk to your time until retirement. The younger you are, the more risk it assumes you can take. As you get older, the investments are updated to account for a lower amount of risk you should take.
With a default fund, you may find that the risk level reduces quite a lot just to be on the cautious side. For somebody with a riskier attitude to investing, you may find that a default fund is not suited to your needs.
This is where fund availability can be useful. Some pension providers will have access to thousands of funds, giving you plenty of choice. Others may only offer access to a handful of funds.
For somebody in the later stages of their career, you might want to take a more active approach with your pension investments and benefit from a pension with a large choice of investments.
When you move jobs, the worst thing you can do is forget about your old pensions.
Pensions are all about investing for your future. Taking the time to get your old pensions in order could make a big difference to your retirement plans. If you have large pensions, you might want to take professional advice before deciding to do anything.
If you want to receive guidance and support for workplace pensions at your organisation, book a free Financial Wellbeing Lunch & Learn for your workplace.