For many people, changing jobs can be both an emotional and stressful time, leading to certain things being forgotten or overlooked. Workplace pensions are often one of them, with many leaving behind their old account when moving to a new employer. However, there are three main options people have when facing this situation: leave the pension where it is, transfer it to your new employer's scheme, or move it to a personal pension.
What Happens to Your Pension Depends on the Type
In most cases, the pension savings or benefits you have already built up remain yours, even after you leave your employer. The outcome depends on whether you have a defined contribution or defined benefit pension.
Defined Contribution Pensions
A defined contribution pension is the most common type of workplace pension today. When you leave your job, the pension pot you have accumulated stays in your name. Your employer's contributions stop, but the money remains invested and can continue to grow or decrease depending on investment performance. You generally have the option to leave the pension where it is, transfer it into your new employer's pension scheme, or move it to a personal pension such as a Self-Invested Personal Pension (SIPP).
Defined Benefit Pensions
Defined benefit pensions, often known as final salary or career average schemes, work differently. When you leave the employer, you stop building up additional benefits in the scheme. However, the pension benefits you have already earned are usually protected and remain payable when you reach retirement age, subject to the scheme's rules.
Starting a New Job
When you begin a new role, your new employer will typically enrol you into their workplace pension scheme if you meet the eligibility criteria. This means you may end up with more than one pension pot over the course of your career. You can choose to keep your previous pension separate or explore transferring it into your new workplace pension if that is permitted and suitable for your circumstances.
Transferring Your Pension
Some people choose to transfer old pensions to reduce the number of pension pots they manage, potentially lower fees, or access a wider range of investment options. Before transferring, it is important to compare charges, investment choices, and any valuable guarantees or benefits that could be lost. For defined benefit pensions valued at more than £30,000, regulated financial advice is generally required before a transfer can proceed.
Finding Old Pensions
If you have lost track of a pension from a previous employer, you can use the government's Pension Tracing Service to locate the scheme administrator and obtain contact details.
Expert Comment
Laura Purkess, Personal Finance Expert at Investing Insiders, said: "If you are employed, make sure you're contributing to your workplace pension scheme. You will also benefit from contributions from your employer and get a 25% boost from the government via pension tax relief. It's basically free extra cash. If you're self-employed, open a personal pension and start contributing regularly. You can opt for a regular personal pension, where your investments are managed for you, or a Self Invested Personal Pension, where you pick your own investments from a wider range of options. You won't get employer contributions in a personal pension, but will still benefit from pension tax relief. Also, track down your old pensions from past jobs to ensure you aren't missing out on any cash. You'll need your old schemes' names - ask your old job's HR department if you don't know. Lastly, consider consolidating your pensions into one pot to keep track of your savings and ensure you're paying the lowest possible fee - but check you won't lose any valuable benefits first."
