Switching Jobs? Understanding Your Pension Options

Have you recently switched jobs? Or are you currently mulling over your career options? If the answer is yes, you’re certainly not alone. Thanks to the phenomenon of ‘The Great Resignation’ off the back of the global pandemic, 40% of workers are thinking about leaving their jobs in the next three to six months.

So if you have an occupational pension (i.e. a pension that’s provided by your employer), it’s essential to know exactly what your pension options are when you leave a job.

In this blog, we’re sharing the multiple ways that you can deal with your occupational pension when you switch jobs.

Types of pensions schemes and transfer options

There are various types of workplace pensions. An occupational pension is one where both yourself and your employer make regular contributions to a pension fund, while a PRSA is a pension scheme that enables workers to make contributions through payroll and are entitled to tax relief, but employers typically wouldn’t contribute to themselves.

Regardless of the type of workplace pension you have, you should be made aware of what you can do with the pension fund you’ve accumulated by the administrator of that particular pension scheme. This can take up to six months after you leave the employer, but you shouldn’t feel obliged to wait this long before taking action with your pension.

If you’ve been contributing to a pension scheme with your employer for less than two years, you can either get a refund of the money you’ve paid into the pension (which will be taxed). Alternatively, you can transfer the fund to a scheme with your new employer, or to a Private Retirement Bond (which isn’t attached to any particular workplace – we’ll explain the benefits of a PRB later). Another possible option is to simply leave your pension fund with your previous employer – but as a deferred member of the scheme, you won’t continue to receive any of the entitlements that you would have had as an employee. Therefore your fund won’t have the opportunity to grow any further.

If you have been with an employer for more than two years, you can’t receive a refund of your accumulated pension fund. However, you can either do nothing and remain a deferred member of that pension scheme (retaining your existing benefits), or alternatively transferring those benefits to your new employer’s occupational scheme or a Private Retirement Bond.

The Benefits of a Private Retirement Bond

As pension specialists what we often see are individuals that have switched jobs a number of times over the course of their professional careers to date, and have left their pension funds with those previous employers. This means that they have multiple pension pots (sometimes even from previously working in the UK or overseas). The issue with this is that the value of those pension pots doesn’t grow – your fund amount remains the same as the day you leave employment. This doesn’t bode well in the longrun, taking inflation and retirement goals into consideration.

When you transfer a previous pension (or multiple pension pots) into a Private Retirement Bond, everything is in one place. You get to choose exactly how you want your overall pension fund to be invested, without any involvement from previous pension scheme trustees or employers. With multiple pension pots, you are also likely to face varying terms around accessing the funds, ages of drawdown, stipulations around early access, etc. On the other hand, a PRB can be drawn down from the age of 50, with the possibility of accessing it earlier if you become seriously ill, for example.

Here are some more of the benefits of choosing a Private Retirement Bond to house your pension funds:

  • You are entitled to take a once off tax-free lump sum (which is generally 25% of the asset value)
  • You can purchase an annuity with the remainder of the funds. An annuity is an option that guarantees to pay you a specific amount every month of your retirement years.
  • You can also transfer the remaining funds to an approved retirement fund or minimum retirement fund.
  • You can make changes to how your Private Retirement Bond is being invested. Typically this coincides with major life changes, unplanned events, etc.

Take control of your previous pension

When you start a new job, it’s easy to be focused on working with a new team, understanding new processes, and taking on board a massive amount of new information. While it might seem like the easiest path to take when it comes to your previous pension is to simply leave it with your old employer, you should know this – doing nothing is still doing something. You get out of your pension what you put into it, and so it’s really wise to get professional advice and take an active role in managing your pension fund to ensure it’s gaining as much traction as possible.

At Elevate Financial Planning, we work with individuals to map out their retirement goals, spell out what their options are for their old pensions and advise on which route is most suitable. If you’ve recently switched jobs or have multiple pension pots with previous workplaces, book a free 15 minute discovery call with us today – a member of the team will help you take the first steps towards making your pension work smarter for you. 

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