Navigating a career move involves more than just updating your CV and attending interviews. Overlooking your pension arrangements during this transition could create significant financial complications for your retirement, experts warn.
The First Critical Step
Adam Gifford, Senior Policy and Propositions Manager at the Money and Pensions Service, emphasises that your immediate priority should be contacting your pension provider. "The first thing you should do is check and make sure your contact details with your pension provider are up to date," he advises.
Gifford highlights a common pitfall: "Your pension is often set up based on your employment details, so your work email address, but obviously when you leave, that's no longer necessarily where you want your emails going." He recommends ensuring your personal address, contact number and email are current with the provider. Additionally, updating your beneficiary nomination is crucial for directing where benefits should be paid.
Finding Lost Pensions and Managing Small Pots
For those who have completely lost track of previous pension arrangements, the Government's pension tracing service at gov.uk/find-pension-contact-details provides a solution.
Even small pension pots from brief employment periods deserve attention. "Where we've got pots of less than £1,000, the Government is looking to try and ensure that they do just move across and get consolidated over time," Gifford explains. He warns that without contributions, charges could gradually erode the value of smaller pots, making consolidation into a new pension a sensible approach.
Understanding Your Pension Options
With updated details, you face decisions about your pension's future. Most modern workers accumulate defined contribution pensions, where both employer and employee contribute to a retirement pot.
"If you change jobs and you've got one of those, typically, all the contributions going in will stop," Gifford states. You can leave the pension where it is to continue growing through investments, though some providers may allow continued personal contributions - particularly useful for those becoming self-employed.
When your new employer offers a different pension arrangement, consider merging previous pots with your new one. "It just makes it easier to keep track of over time," Gifford notes, while advising people to compare charges and investment options between providers before transferring.
He issues an important warning about checking for valuable guarantees attached to older pensions, such as guaranteed annuity rates or protected tax-free cash, which could be lost through consolidation.
Defined Benefit Pensions and Seeking Professional Guidance
The less common defined benefit pensions, which provide a retirement income based on salary rather than a pot of money, present different considerations. When leaving such schemes, you become a deferred member with built-up benefits increasing annually with inflation.
While transferring to a defined contribution pension is sometimes possible in private sector or local government schemes, Gifford cautions this is rarely advisable and isn't permitted in certain public services like police or fire service pensions.
Given the complexity of pension decisions, Gifford strongly recommends seeking professional financial advice. "If you are able to, it's always worth getting financial advice not least because they can make sure that everything is being done correctly, but also because they can assess your wider financial situation and help you think about a plan for retirement."
For those needing free support, the MoneyHelper website offers comprehensive pension guidance to help navigate these important financial decisions during career transitions.
