What happens to your pension when you start a new job?
At a glance
The quick and easy answer is: nothing will happen to your existing pension, or pensions, when you start a new job. And the good news is, your new employer is legally obliged to automatically enrol you in their workplace pension scheme, as long as you meet a couple of requirements. This essentially means more free money for your retirement pot.
While nothing happens to your existing pensions when you start a new job, switching employers is a good opportunity to review what you’ve got. It could be there is a much better pension deal out there for you.
What pension should I get when I start my new job?
If you are 22 or over and earning £10,000 or more per year your new employer must automatically enrol you in their workplace pension scheme. And from April 2019 the minimum contribution is 8% of your salary:
The rules around workplace pensions are governed by auto enrolment legislation, which came into force in 2012. And it’s this legislation that is helping to transform people’s savings plans:
Can I transfer my new workplace pension to an existing scheme?
Generally, while you can opt out of a workplace pension scheme (and therefore auto enrolment), you cannot ask for payments into your new workplace scheme to be paid into another existing pension instead. And by opting out of your workplace scheme you will be giving up the minimum contributions your employer has to make by law. And who wants to give up what is effectively free money from their employer?!
Can I transfer existing pensions into my new workplace scheme?
I’m starting a new job: why should I also review my pension arrangements
Starting a new job generally means a change to your financial situation. On top of this, it’s very likely that you’ll be getting a new workplace pension scheme. As a result, it makes sense to review all your pensions, to make sure you are getting best possible value for the money you are putting into your pension. Three of the biggest issues affecting pensions are:
High charges
How much you pay for your pension can vary wildly. And over time, what seems like a small difference can have a significant effect. For example: just 1% higher scheme charges could mean £25,000 in lost growth over 20 years.1
Poor performance
The right mix of pension investments depends on how and where your savings are invested. And the right mix for you depends on your circumstances, your attitude to risk and how long you have left until you plan to use your pension. This means that just because the average performance of your pension is higher than a friend’s, for example, it doesn’t mean their scheme’s performance is poor. They might simply be prepared to take less investment risk than you.
However, as with all products, there are great pensions and some absolute stinkers out there. And if your money is invested in an old, lazy scheme you could be missing out on a significant amount of growth.
Lack of management
The right type of pension and investment mix for you depends on many variables. And over time these variables change: from your attitude to investment risk to how and when you need to access your pension savings. On top of this, new pension products can quickly mean that today’s top performer is tomorrow’s has-been.
The best way to make sure your pension remains tailored to you throughout your life is to regularly review it. Or, ask a regulated pension specialist to manage your pot for you, as long as that management includes reviews every year as part of that service.
How do I review my pension?
Ask an independent financial adviser to review your pension. You should be looking for a financial adviser that:
1Based on a £50,000 sum at onset, growing at 6% per year before charges of 0.5% and 1.5% are applied.