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Changing jobs or careers can mark a significant turning point in one’s professional journey.
When you’re in the process, you might not be thinking much about what happens to the pension you had with your old employer.
But over time, the decisions you make regarding your pension can have a significant effect on your financial status.
In the middle of all the changes, it’s important to have the right information to make smart choices about your pension.
What options are available to me?
When leaving your employer or changing careers, you might have some options.
However, deciding the best option depends on how long you’ve been a member of the company’s pension plan. It’s all about the time you’ve spent in the pension scheme with the company.
If you have more than two years of qualifying service
If you have more than two years of pensionable service, you won’t be eligible for a refund of your personal contributions. However, you will have the option to choose between:
- Leave your pension in your former employer’s scheme.
- Transfer your pension to a Personal Retirement Bond (PRB).
- Transfer your pension to your new employer’s Occupational Pension Scheme.
If you have less than two years of qualifying service
On the other hand, if you have less than two years of pensionable service, you have the following options:
- Keep your funds in the former employer’s scheme as a Deferred Member. If your scheme rules permit, you might retain a deferred benefit, including the full entitlements from both your and your employer’s contributions for your service duration.
- Opt for a refund of your own contributions (not your employer’s), subject to tax at the basic rate. Certain rules apply to this option, and it is only available if the scheme rules permit rights in the first two years.
- Choose to transfer your own gross contributions to your new employer’s Occupational Pension Scheme.
- Transfer to a Personal Retirement Bond (PRB).
Understand each option:
Leaving your pension in your former employer’s scheme
Leaving your retirement savings in your existing pension plan is also known as a deferred pension.
This is the default choice, so if no action is taken, your savings will stay in the current pension plan. Upon leaving employment, you will automatically become a deferred scheme member.
Note that your fund might not have the chance to grow any further because the money’s value will fluctuate based on investments. Also, there won’t be any additional contributions.
When you retire, you have the option of taking a 25% tax-free lump sum from the age of 50, putting it in an Annuity, or choosing an Approved Retirement Fund (ARF).
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Transfer your benefits to your new employer’s occupational pension scheme
When transitioning to a new job or career, moving your old pension money to the new employer’s pension scheme is a good idea.
This consolidation makes it easier to manage your retirement savings. Putting all your benefits into the new pension plan helps you see and plan your money better.
Instead of juggling multiple pension pots, combining your benefits into a new pension scheme provides clarity and ease in tracking your financial future.
Deciding whether to transfer your pension requires careful consideration. Before making a decision, it’s crucial to examine the details of both pension schemes.
For instance, some pension schemes offer unique benefits or features that may not be available in other schemes. Opting to transfer could result in giving up specific advantages provided by your former employer’s plan.
Transfer to a Personal Retirement Bond (PRB)
When you’re moving on from your job, consider the option of transferring your pension to a Personal Retirement Bond (PRB).
This move offers a range of advantages, including keeping your investments intact, enjoying flexibility in choosing how to invest, and the convenience of consolidating pension assets if you’ve had multiple employers.
Opting for a PRB puts you in control when it comes to your retirement planning, giving you control over accessing funds and allowing portability between jobs.
Note that after leaving a company pension, you have up to two years to move your money to a Retirement Bond.
You can still transfer to a Retirement Bond after the two-year window has passed, but you will need the trustees of the pension to consent.
Discover more about why choosing a PRB could be beneficial, understand the associated charges, and gain additional insights by delving into our article.
Withdraw your pension contributions
If you’ve been part of your occupational pension scheme for two years or less, you may be eligible for a cash lump sum. However, this only applies to your contributions and not your employer’s.
You can request a refund of the value of your own employee contributions, less tax (currently 20%).
How do I decide which option is most suitable for me?
Deciding which option is best for you requires a thoughtful consideration of your unique financial situation. Since everyone’s circumstances vary, it’s crucial to sit down with a financial advisor who can guide you through the process.
Consulting with one of our financial advisors at True Wealth ensures that you thoroughly examine all the pros and cons based on your situation.
We’re here to assist you not only in navigating the pension transfer process but also in addressing all your retirement and pension planning needs.
Gain valuable insights by exploring our Retirement Planning Guide, offering comprehensive knowledge to help you navigate the intricacies of retirement planning and pensions.
We are also experts in personal and business protection, savings and investments, pension tracing, personal and business financial planning, mortgages, and wealth management and extraction.
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All our content has been written or overseen by a qualified financial advisor. However, you should always seek individual financial advice for your unique circumstances.
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