If you’re employed, you’ll likely be saving into a pension under auto-enrolment rules, where employees are automatically placed into a pension plan.
But when moving jobs, it’s easy to forget about your pension pot - and while the government is currently consulting on consolidating small pension pots, the onus is still on employees to take action when changing jobs.
The Department for Work and Pensions estimates there is about £400m sitting in ‘lost’ pensions.
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This typically happens when someone moves to a new employer and holds a deferred pension, and then they move house and forget to tell their pension provider. Their pension becomes lost and the saver can quickly lose track of their retirement savings.
We look at how best to keep on top of your pension pots and make the most of your retirement savings when you switch jobs.
1. Get a pay rise through matched contributions
Each time you start a new job as an employee, you’ll be auto enrolled into a defined contribution plan. While many employers will contribute the basic 3% required, some will match your contributions up to a higher level.
“If you’ve changed jobs, you should aim to at least maintain the amount that you save and increase it if you will be earning more money in your new role. Many schemes will match any increased contributions you make up to a certain level, so take advantage of this benefit if you can,” says Ed Monk, associate director for personal investing at Fidelity International.
Increasing your contribution and getting extra pension money from your employer is like getting a pay rise, albeit a delayed one that you can enjoy until later in life.
“The minimum contribution to a workplace pension is 8%, with 5% of this, including tax relief, coming from the employee. While many employers stick with the minimum contribution, some offer far more, with the most generous in the private sector offering double matching of contributions, where if the employee puts in more, then up to a maximum, the employer will ‘double match’ these additional contributions, sometimes taking the total amount to more than 20%,” says Becky O’Connor, director of public affairs at PensionBee.
“Remember that even without employer matching, you can increase your own contributions to your pension and benefit from tax relief on those contributions,” she adds.
2. Consider consolidating your pension
Each time you start a new job, you will probably end up with a new pension pot, often with a different provider. It is possible to transfer older pensions into one pot with one provider – a process known as consolidating pensions.
“Your old pension plan will remain invested so it has the potential to continue to grow in value, but you will also continue to pay charges. Consolidating your pensions into one pot could help you manage your finances more easily and you could also benefit from lower charges. However, there are drawbacks to be aware of, such as valuable guarantees,” says Monk.
Figures from workplace savings and pensions fintech Cushon show that 86% of employees aged over 55 have never transferred one pension into another pot.
““Millions of older employees are sleepwalking their way into retirement with no idea of whether they’ll be able to afford the lifestyle they’ve spent decades working towards,” Steve Watson, director of policy and research at Cushon says.
“Some of these savers will only be a few of years away from retirement and with many juggling multiple pots they not only risk losing track of them but make it harder for them to know if they have enough saved,” he adds.
If you’re finding it hard to judge whether combining your pensions is a good idea - or if you’re considering moving a defined benefit scheme - seek expert help from a financial adviser.
There may also be a pension expert in your HR team at work who can offer some assistance regarding consolidating pension pots.
3. Don’t give up valuable benefits
Consolidating is an easy answer to avoid losing track of your pension pots but any previous workplace schemes you hold may offer valuable benefits that would be costly to give up if you transfer your money out.
Before consolidating your pension pots, make sure you review it thoroughly and check you won’t give up any valuable benefits. If you choose to leave your pension where it is, try to regularly check its value even if you’re not paying into it.
“In some circumstances it can be advantageous to have small pension pots of under £10,000 as withdrawing these may not trigger the money purchase annual allowance, which could limit your pension contributions in the future," comments Monk.
“Additionally, older pensions could have other benefits such as guaranteed annuity rates, guaranteed fund returns and bigger tax-free lump sums higher than the usual 25% (limited to £268,275). Make sure you check your benefits before merging your pensions - tidying up your string of pension pots could reduce fees and paperwork, but it might not always be in your best financial interest.”
4. Check how green your pension is
From recycling our rubbish or going vegan, to using the car less often, many of us are making small changes to our daily lives to reduce harm to the planet. Switching employers is a good opportunity to review how sustainable your existing pensions are.
“You should be able to access details of your pension holdings through fund factsheets, and your pension provider [may also be able to advise how green or ethical the investments are]. Your provider might have sustainability built into its default investment strategy or have an environmental, social or governance (ESG) choice that you can select yourself,” says Monk.
5. Finding lost pensions
The Association of British Insurers estimates that more than 1.6 million pension pots are lost.
If you think you may have money saved in misplaced pension pots, you can find it using the government's free online pension tracing service.
You will need either your employer's name or your pension provider and this service will give you contact details.
Pedro Gonçalves is a finance reporter with experience covering investment, banks, fintech and wealth management. He has previously worked for Yahoo Finance UK, Investment Week, and national news publications in Portugal.
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