Should I transfer my pension to my new employer? (What you need to consider)
Should I transfer my pension to my new employer? So you have moved on from one two or more jobs. Now, what should you do with this collection of small, medium and hopefully large pensions?
You potentially have a number of options from doing nothing to merging them all.
You could possibly do one or more of them; whether you should may require and bit more thought and information to make an informed decision.
Yes, you can normally transfer your pension to a new employer. There can be a number of administrative advantages to this. However, you need to make sure that any transfers won’t incur excessive fees or costs and that you won’t lose out on any benefits offered by your pension.
Read on to discover what you need to consider for your pensions when moving to a new employer.
What happens to my pension when I change jobs?
Generally, when you leave a company, your pension just sits there waiting for you to do something with it.
Your pension is in your name, not the company’s. So when you leave the company, your pension stays the way you left it.
It “generally” remains invested in the way you left it. It will go up and down according to how its invested and whats going on in the wider market.
It “generally” remains the same depending on you a few things—your age and or if there are any lifestyling elements to the pension scheme.
Some pension schemes have a lifestyling component whereby when you reach a certain age, it will start to dial down the stocks and increase the bonds holdings. In theory, this is to reduce the fund’s volatility as you come near retirement. Hopefully, so that you don’t see your pension fund go down dramatically the day before you retire.
Lifestyling doesn’t stop your pension going down in value; it just might help make it a less bumpy ride.
This is potentially one occasion where your pension, although just sits there might change in its investments.
Is it a good idea to transfer my pension?
That depends on what you are trying to achieve by transferring it.
Are you trying to:
- Reduce your admin?
- Reduce your costs?
- Change your investments?
- Increase your returns?
- Do something else?
Any of these may be good ideas depending on a few additional questions
If you transferred your pension
- Would you lose any benefits?
- Would it costs you any money and do you know how much?
- Do you need additional advice to ensure you have thought it through?
- If you have a defined benefit pension, then you are obliged to get financial advice on any pension transfers due to the risk of losing some benefits.
When might it be a good idea to transfer my pension?
Transfering your pension might be a good idea if it makes it easier for you to track and manage your pension/s.
If they are all in one place, it can make the admin of them, understanding what’s going and what action might need to be taken easier to undertake. Having it all in one place may also reduce your confusion and stress over managing several pension pots.
It may be a good idea to transfer a pension if the new pension is substantially cheaper to run. The less money you pay out in fees means the more money you get to keep.
And it may also be a good idea to transfer your pension if what the old one is invested in is now no longer what you feel comfortable with. Maybe you now want to diversify your investments differently, i.e. less in this and more in that.
It may be that back in the old job, there wasn’t much choice of investments, but now there is. Maybe you have more of a choice what sort of things to invest in including environmental, social or good governance (ESG) related investments.
Maybe now you would like to make more investments in companies you think are more or less ethical than others to meet your values or interests.
When might it be a bad idea to transfer my pension?
In short, when you have no idea what you are doing.
You need to gather the data of where your pensions are, what they’re invested in, what the fees are and what might be the conditions of any transfer, i.e. costs and/or loss of benefits.
And then weigh this against what you think the benefits of transferring are?
The benefits could be.
- What the new pension is invested in.
- What the fees are
- What are the conditions of the new pension, i.e. does it have any costs or loss of benefits if and when you transfer out of that one?
Once you have this data, you can make an informed choice and or realise you need further guidance and advice.
Can I transfer my pension myself?
It depends.
If you have a defined contribution pension, it is usually possible to do this yourself.
You will need to review if there are any potential costs or loss of benefits so that you can transfer without any nasty surprises. You can ask your previous pension scheme if there are any costs or loss of benefits if you move your pension.
If you are happy with what you have found out, it is usually possible to request a pension transfer from your new pension scheme. You may also need to request the transfer from your old pension scheme just to join the two ends of the request together.
Either way, you obviously need to have somewhere to and from the transfer to take place and let these two sides know what you want to do.
If you want to transfer a defined benefit pension, then this is where you will likely have to take financial advice. This is because these schemes had many more inbuilt benefits (a guaranteed income) amongst others that you may well be losing once you transfer out of it.
Transferring out of a defined benefit scheme has a lot more things that might need consideration and clarity on why you want to transfer and what benefits you might be gaining and giving up.
Can I transfer my pension without financial advice?
It is usually possible to transfer this without financial advice for defined contribution pensions.
For defined benefits schemes, you will likely have to take financial advice before being allowed to transfer.
If you have a large pension/s and or you have complicated, expensive questions, then maybe it might be useful to get some further guidance or advice if it’s a good idea to transfer.
You can weigh this potential additional cost of someone’s time against getting it wrong by yourself.
The Money Advisory Service and the Pensions Wise are two good sites to seek further information.
Is a pension worth staying at a job?
Do you like the job or not?
If you like your job, a good pension is a bonus.
If not you are basically saying that your company is compensating you for doing something you hate so that you can enjoy the money when you are a lot older and less able to spend it.
How does that deal sound to you?
Yes, you need a pension of a decent size for a dignified, comfortable, independent lifestyle. However, you need to balance that with your current self.
I like the quote below from Warren Buffet – its alluding to using your money now on the things that bring you joy but also conscious that you will need cash in your old age as well.
“It’s nice to have a lot of money, but you know, you don’t want to keep it around forever. I prefer buying things. Otherwise, it’s a little like saving sex for your old age.”
Warren Buffet
FAQ: Should I transfer my pension to my new employer
Is it a good idea to transfer my pension?
There is no one-size-fits-all answer to this question, as your best course of action will depend on your financial situation. However, transferring your pension to your new employer can be a good idea if you want to consolidate your retirement savings into one account. Speak with your pension provider to determine if transferring your pension has any negatives.
Will I lose money if I transfer my pension?
There are a few things to remember when considering transferring your pension.
First, you will need to know the rules and regulations of your specific pension plan. Talking with your pension provider to understand the pros and cons of transferring your pension is important.
Second, there are usually fees associated with transferring a pension, so you’ll want to ensure that you understand these.
Finally, if you are changing your investments, it’s possible that while your investments are being bought and sold, the market changes, causing a gain or loss.
Do I have to move my pension from a previous employer?
You generally don’t have to move your pension from a previous employer, but you may want to consider doing so.
One reason to move your pension is to consolidate it into one account, making it easier to manage.
Another reason is that some pensions are invested in low-yield or poorly diversified industries, while others might be invested in things you don’t want to invest in, like fossil fuels.
By moving your pension, you can ensure that it’s being managed in the best way possible for you and that you’re getting the most out of your investment.
What happens to your pension when you change companies?
When you change jobs, your pension usually stays with your previous employer, but the pension remains yours. You’ll want to check with your pension administrator or previous HR department to find out what options are available to you.
Should I transfer my pension when I change jobs?
The reasons you might or might not want to transfer your pension when changing your job include:
Administration: It can be easier to have all your pensions in one place, but you need to consider the below to make sure you don’t lose out on any benefits.
Costs and fees: are there any costs or fees in transferring pensions, and will this result in you losing more money than is worth it.
Loss of Benefits: Are there particular benefits with your pensions that you would lose if you moved them? This is usually associated with final salary or defined benefit pensions. For these types of benefits, you will likely need specialist financial advice to get it right.
Can I cash in my pension if I no longer work for the company?
Generally the answer to this before 55 is no.
In some specific circumstances, which you would need to get specialist advice on it can be possible but you will pay and hefty tax bill to access the funds before 55.
What happens to my final salary pension if I leave the company?
If you leave a company with a final salary pension, the pension scheme will be responsible for paying out your pension when you reach retirement age.
The amount you receive will depend on a variety of factors, including how long you worked for the company, your salary, and the terms of the pension scheme.
In some cases, you may be able to transfer your final salary pension to a new pension scheme if you move to a different employer or become self-employed.
However, this is a complex process and it is important to seek advice from a financial advisor before making any decisions.
What happens to my pension when I leave a company?
When you leave a company, your pension scheme will continue to be managed by your previous employer or the pension provider.
Your pension will remain invested in the scheme until you reach retirement age. At that point, the scheme will pay out your pension according to the terms of the scheme.
If you join a new employer, you may be able to transfer your pension to a new scheme.
Summary: Should I transfer my pension to my new employer?
You could merge your pensions for ease of management, reduce costs, or change how your pension is invested.
Summary table: should I transfer my pension to my new employer
| Factors to Consider | Pros | Cons |
|---|---|---|
| Pension Benefits | Consolidation of pensions into one account | Loss of certain benefits or guarantees from the old scheme |
| Investment Options | Access to a wider range of investment choices | Potential higher fees or charges with the new scheme |
| Employer Contributions | Benefit from employer’s contribution to the new scheme | Loss of employer contributions from the old scheme |
| Transfer Costs | Avoidance of multiple administrative fees | Potential transfer fees or penalties |
| Pension Performance | Potential for improved investment performance | Uncertainty regarding future performance of new scheme |
| Flexibility | Enhanced options for future withdrawals | Limitations or restrictions on accessing funds |
| Future Job Changes | Simplify pension management with future job changes | Potential complexities if transferring between multiple employers |
All or some of the above may make it a good idea to transfer them to your new employer.
The reverse may also be a reason not to i.e. it’s okay where it is right now.
Its usually easier to transfer defined contribution schemes as these usually have fewer strings attached than defined benefit schemes.
You are likely to need to take financial advice on transferring any defined benefit schemes as changing this type of pension might mean the loss of some benefits.
Gather the data to make an informed pro’s vs con’s decision on whether to transfer to a new pension scheme or if you need to seek further advice.
If you would like help with your financial planning set up a call with us.
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