Pension plans are an important source of retirement income for many working Brits. As of 2018, it’s compulsory for every company in the UK to enrol its eligible staff in a workplace pension scheme. Since these pension schemes are run by employers, you might be wondering what will happen to your pension if you change jobs.
Will you lose the pension and its benefits? Or will you be able to keep everything and walk away with it? Let’s find out.
How do workplace pensions work?
A workplace pension is a way of saving for retirement that’s arranged by your employer.
Contributions are deducted directly from your wages. Your employer will also add money into the pension scheme for you. Additionally, you’ll get tax relief from the government on the contributions you make to the scheme.
These contributions will then be invested with the ultimate aim of increasing the amount you have to retire on.
There are two main types of workplace pensions:
- Defined benefit pensions
- Defined contribution pensions
For more information on the nature of each, check out our article on how pensions work.
What happens to my workplace pension if I change jobs?
The good news is that your workplace pension still belongs to you even if you change jobs, so you won’t lose it. You also won’t lose any benefits you might have already built up.
If you change jobs, you have several options for your pension.
First, you can leave the funds in your former workplace scheme. If you do not continue paying into the scheme, your money will still remain invested and you’ll get your pension once you reach the scheme’s pension age.
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Some employers might also allow you to continue making payments into your old scheme. However, they won’t make any new contributions. You might not get some of the pension scheme’s benefits in the future as they may only be available to the employer’s current workers. But you might still get tax relief on your payments.
The other option is to join your new employer’s pension plan. You can subscribe to the new plan while still maintaining the one at your old employer. Or you can transfer the old scheme to the one at your new employer or even to another different scheme. It’s important to note, though, that this is not possible for all schemes. So, before you take any action, check whether:
- Your current pension scheme provider allows you to transfer some or all of your pension pot
- The new scheme that you wish to transfer to will accept the transfer
Can’t I just cash in the pension from my old employer?
It’s not that simple. Except in some rare cases, for example, if you are very ill, you usually can’t take money out of your pension pot before you turn 55.
In fact, according to Pension Wise, if someone contacts you unexpectedly and says they can assist you to access your pot before the age of 55, it’s likely to be a pension scam, so exercise caution.
What if I become self-employed?
If you leave your job to become self-employed, your former employer will no longer pay into your workplace pension, but you can leave the funds there and continue making contributions. Check first to see whether this is actually possible because, as mentioned, not all schemes will allow it.
There are also several other ways to save for your retirement after becoming self-employed.
For example, you can set up a personal pension or stakeholder pension. These are available from various pension providers in the UK and could give a much-needed boost to your retirement income.
Another option worth considering is the National Employment Saving Trust (NEST). This is a government-run workplace pension scheme that’s open to employers and the self-employed.
If you are changing jobs and are unsure of what to do with your current pension, it might be a good idea to talk to a financial adviser first. They can help you make the best choice based on your situation and your goals for the future.
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