Changing jobs can do wonders for your career progression but it can play havoc with your retirement planning if you let it.
The reality is that pensions being left behind in old jobs is becoming a much more common occurrence nowadays since people are changing jobs, and even careers, a lot more than they used to.
And while it might be the easier option, leaving pension assets behind isn’t good because it usually results in a case of ‘out of sight, out of mind’ which is not a good strategy to adopt for any financial asset you own.
Leaving a Pension Scheme
When you leave a job – especially one you’ve held for a long time – you will have many things vying for your attention so the last thing on your mind may be your pension benefits.
But it’s important to realise that your pension benefits are legally owned and managed by the trustees of that scheme and that your legal status changes once you leave.
Specifically, you go from being what’s called an ‘Active’ scheme member to being a ‘Deferred’ scheme member.
This status change has very real consequences since active members will always be given priority over deferred members since they’re no longer part of the group.
As such, there are inherent risks to leaving your benefits behind so you should always take them with you when possible.
8 Reasons Why You Shouldn’t Leave a Pension Behind
- You might just forget you were in that scheme (this happens a lot, particularly when a significant amount of time has elapsed).
- You might want to start a completely new life abroad meaning the trustees may not be able to track you down if they need to.
- You could die before retirement age which could make things very difficult for your dependants.
- Your investment could underperform since you’re limited to the options of the schemes provider.
- Your old employer could go out of business which would make finding your pension very difficult.
- Your old employer could be taken over by another firm which can be complicated.
- Your money will be subject to the scheme rules and trustee rules but can be accessed from 50.
- You might not have the option to transfer it out later on if PRB’s are removed from the market.
In any case, and even if some of the above reasons aren’t applicable in your situation, you should still treat old pension benefits in the same way you would treat any other asset you own.
So, on leaving the company, you will be deciding between 1 of the following 3 options;
Option 1: Leave Your Pension Where It Is
- Charges are likely to be lower in a large group scheme but this isn’t a universal truth.
- Any retirement options, including early retirement, will be according to scheme rules.
- Large schemes have a more limited range of investment options since they’re built to cater for large groups of employees.
- Trustees are not obliged to keep in contact with deferred members.
- If the scheme is closed you could lose your accumulated rights if you are transferred out to a PRSA instead of the current PRB option.
Option 2: Transfer Your Pension into a Personal Retirement Bond (PRB)
- Full cash value is held under one single premium contract that is owned by you personally.
- Your accumulated rights are preserved i.e. all salary and service details are recorded which maintains your rights to the ‘lump sum only’ option.
- You can still access your benefits from a PRB from age 50 just like in the main scheme.
- You have full control over your money and the investment decisions.
- You can design a personalised, risk tailored portfolio that suits your tolerances, risk profile and long term growth goals.
- The annual management charges tend to be higher depending on the funds and/or assets chosen.
Option 3: Transfer Your Pension Into Your New Employers Pension Scheme
- You maintain full active control over your entire pension fund.
- You could lose your accumulated rights of salary and service if you transfer into the wrong type of scheme being offered.
What Should I Do With My Old Employer Pension?
In most cases, the best option will be the Personal Retirement Bond (PRB) since it;
- Maintains the accumulated benefits and retirement options related to your salary and service,
- Maintains the same tax-free lump sum entitlements available under the main scheme,
- Allows you to manage your investment strategy and gives you complete control over your asset.
A Personal Retirement Bond allows you to assume ownership of your investment so you can manage it effectively, monitor how it’s doing and make changes if required.
When you leave a pension behind you still attribute it to your old employer and it can be hard to move it the more time goes by. Transferring it to a personal retirement bond is a statement to yourself that you want to be in control of your assets.
How Do I Transfer My Pension From My Old Employer?
If you’ve left benefits behind – or are about to leave a company – then the first step is to get in touch with the HR department and request your ‘Leaving Service Options’.
The HR department or the administrator will request the figures from the trustees on your behalf who will then issue you with a document outlining the current value of your benefits and the options you have.
It normally only takes about 3-4 days to get this but it can take longer.
When you have this document to hand, feel free to give me a call on 01 442 3929 or email at email@example.com and I will talk you through what it says.
2019 Business All-Star for Pensions.