What happens to my pension when I change jobs?
Following the introduction of auto-enrolment, every employer in the UK must enrol eligible staff into a workplace pension scheme automatically. But what happens if you change jobs? We explain everything you need to know.
There are two types of workplace pensions: defined contribution and defined benefit.
Changing jobs doesn’t mean losing the pension benefits you’ve built up.
As you move from job to job, it might be worth consolidating your pensions so you don't lose track of them.
The government has a pension tracing service to help you find lost pensions.
Most of us will change jobs at least a handful of times during our working lives - in fact, it’s not unusual for some people to have 10 or more.
And, when you pay into a different workplace pension in each role, it’s easy to end up with numerous schemes.
Read on to find out everything you need to know about what happens to your pension when you change jobs and the steps you can take to keep your retirement savings simple.
But, before we jump in, it’s a good idea to understand the various types of workplace pension.
What are the different types of workplace pensions?
There are two types of workplace pensions: defined contribution and defined benefit.
Defined contribution
Defined contribution pensions are the most common.
What you receive at retirement is based on how much money you pay into your pension and how well your investments perform. When you retire, it will be up to you to decide how to turn your savings into an income stream.
It’s normally straightforward to transfer DC pensions - for example consolidating multiple schemes into one pot.
Defined benefit
Defined benefit pensions are less common and are now normally only offered to public sector workers.
These pensions pay a guaranteed income for life that increases annually in line with inflation, which makes them very valuable.
The amount you get is based on your salary and the number of years you worked for that employer.
However, defined benefit pensions are not so easy to transfer, and if you have a transfer value over £30,000, you will need to get financial advice before you can proceed.
Some defined benefit pensions allow you to claim your contributions back if you’ve only worked for an employer for a short time.
Schemes offered to NHS staff and teachers usually provide a refund option if you’ve had your pension for less than two years.
Final salary and career average pensions are both examples of defined benefit schemes.
What are your pension options if you change jobs?
Changing jobs doesn’t mean losing the pension benefits you’ve built up.
The pension fund belongs to you.
If you’ve been enrolled in a defined contribution pension, you can either leave the funds where they are and draw on them at retirement or transfer them to another personal or workplace pension.
It’s wise to check you’re not going to lose any decent benefits or incur a penalty before making any transfer, and a financial adviser can help with this.
Most workplace pensions will allow you to contribute even after leaving your employer. But whether or not that makes sense will depend on your circumstances and your other pension arrangements.
Whatever you decide, don’t lose track of your pension plans and make sure your providers always have an up to date address for you. This will ensure you continue to receive annual statements.
Should you consolidate your pension pots?
As you move from job to job, it’s easy to lose track of your pensions. That’s why it could make sense to bring them all together in one place.
Here’s why consolidating your pensions might work for you:
✅ Easier to manage: By consolidating your pensions, you won’t have to waste time tracking them down separately in the future.
✅ Less admin: With all your pots in one place, you only need to contact one provider if you change address.
✅ Easier to review: It’s quicker to see if your retirement savings are on track and make changes to your investments, if you're not dealing with multiple providers.
✅ Lower charges: By transferring all your pension pots into a new pension, such as a low-cost SIPP, you may benefit from lower charges, but it’s important to check savings first.
Learn more: Should you consolidate your pensions? The pros and cons
How do you find your pensions?
When you change jobs and move home regularly, it can be easy to lose track of your pensions.
According to the Association of British Insurers, there are now 3.3 million lost pensions, worth over £31 billion.
If you think you might have lost one of yours, take the time to go back through your records. You could also make queries with old employers or former colleagues.
If that fails, the government also has a pension tracing service that can help.
This service is free, but you will need the name of an employer or the pension provider to get started.
Why is it important to trace lost pensions?
Few of us reach retirement thinking we should have spent more and saved less. So, it’s important to track down any old pensions you’ve lost - they could be worth thousands of pounds and make a significant difference to your retirement finances.
The average lost pension is worth £9,470, according to the ABI, rising to £13,620 for people aged between 55 and 75.
Seek expert pension advice
When you start a new job, you will normally be auto-enrolled into your new employer’s pension.
It’s then up to you whether you keep your old employer’s scheme going, consolidate it into your new scheme or a separate personal pension, such as a self-invested personal pension (SIPP).
Consolidating pensions will simplify things and potentially minimise charges.
If you decide against this, it’s important that you know exactly where all your pensions are and keep your providers updated if your address changes.
A financial adviser will be able to recommend the right course of action for you and be able to offer wider advice on your retirement saving strategy so far.
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