Being made redundant is generally a stressful and worrying time. And while managing day-to-day finances and finding a new job will no doubt be top of your list, it helps to know where you stand with the rest of your financial commitments, including your pension.
How redundancy affects you and your workplace pension very much depends on what type of scheme you have.
How do I know what type of workplace pension I have?
It’s very likely your workplace pension will fall under one of the following two main categories (if you are unsure which relates to you then ask your pension provider):Final salary (defined benefit) pension scheme
This type of pension promises to pay you a guaranteed income in retirement, based on how long you have worked for the company and your salary.Will being made redundant affect any other pensions I have?
While being made redundant might affect what contributions you can make to other pensions you have, it shouldn’t have any other impact.
I’ve been made redundant: what are my pension options?
Your questions answered
Final salary (defined benefit) scheme: your options
Keep your pension as it is
Even though you and your employer will no longer be contributing to the scheme on your behalf, you can keep your final salary workplace pension as it is. Then, when you reach the scheme’s set retirement age, you will be entitled to pension benefits. This is often a very sensible option because the benefits will be guaranteed for the rest of your life. What these benefits look like will depend on the specific rules of your scheme, how long you worked for the company and your salary.
Transfer your pension to a new scheme
When you are made redundant you can find out how much your pension benefits with this scheme would be worth in pounds and pence if you transferred to a personal pension. You could then choose to close your final salary scheme and transfer this money into a new or existing personal pension. This personal pension could be a new employer’s workplace pension if the scheme’s rules allowed it.
Take early retirement
Depending on your age, your employer might offer you early retirement as part of your redundancy package. In exchange for reducing your pension benefits, including the size of your guaranteed income, you could then begin accessing your final salary pension.
This is very much a personal decision and depends on what financial commitments you have and any other income you are receiving. If you have a lot of commitments that are due to run for a few more years, then early retirement might not be the best option. On the other hand, you might be able to make the most of this option even though it means giving up a portion of your guaranteed income. It wouldn’t prevent you from taking other paid jobs and for a lot of people this gives them the freedom to explore new careers, passions and working habits.
Personal (defined contribution) pension scheme: your options
Keep your pension as it is
As with a final salary scheme, even though your employer will no longer be contributing to the scheme on your behalf, you can keep your personal workplace pension as it is. In some cases, you can even choose to carry on making contributions.
Transfer your pension to a new scheme
You could transfer your savings into a new employer’s workplace pension, depending on the scheme’s specific rules. Or, you might decide to transfer these savings to another personal pension scheme: either one you currently have or a completely new scheme.
Will being made redundant affect my State Pension?
Being made redundant will only affect your State Pension if you are out of work and therefore not making National Insurance contributions for a significant period.
As the rules currently stand, you need to have 10 qualifying years on your National Insurance record to receive the minimum State Pension. And you’ll need 35 qualifying years to receive the maximum amount.
So, if redundancy affects your National Insurance qualifying years then it could also affect the amount of State Pension you receive. Although, there are ways to make up any gaps in your National Insurance record. Find out more here.
What are the benefits of transferring out of your old workplace pension?
Your questions answered
Final salary (defined benefit) scheme
- You’re concerned the scheme is not adequately financed
- You’re worried your ex-employer might go out of business
- You’re 55 or over and have an urgent need for money and with no other means to raise the necessary funds
Personal (defined contribution) pension scheme
- Lower charges
- Better, or more suitable investment performance
- A tailored and regular ongoing management service
