Pensions Options on Changing Jobs

When you leave an occupational pension scheme, you have a number of options:

  • A refund of your contributions if you've been in the scheme for less than two years. You may be permitted to take your contributions back but you'll be taxed at a rate of 20% and you won't be entitled to any of your employer's contributions. If your company pension scheme had also accepted responsibility for providing the benefits you would otherwise have been entitled to under the state scheme, SERPS , (known as being 'contracted out') there will be a further deduction to buy you back into SERPS. This could reduce your pension substantially. The precise effect will depend on your individual circumstances.
  • Leaving your pension where it is. With final salary schemes, your pension rights will be based on your earnings at the time you leave. By law though, the pension scheme administrators must give your pension rights some protection against inflation up to retirement (by the lesser of 5% or the rate of inflation). Moving your fund elsewhere may enable you to beat inflation. However, you may be giving up other benefits like guaranteed increases in retirement, widows or widowers pensions etc. This is a complex area and there are no shortage of cases of people doing badly having left final salary schemes early - take advice.If your company's pension scheme was a money purchase scheme, you wont suffer the above, your own portion of the pension fund will go on growing in line with the investment performance of the fund.
  • Transferring to a new scheme. When leaving a company and its occupational pension scheme, you may decide you want to cut all your links. If you've been in a final salary scheme , you need to ask the company's pension administrators for a transfer value . Armed with this calculation, you should enlist the help of an independent financial adviser (ifa) or even an actuary and consider carefully whether moving your pension funds will be a good idea. The answer will depend on your age, individual circumstances and what other benefits will be lost when you transfer.

If you're moving from a money purchase scheme, your contributions plus your employer's contributions plus the investment gains achieved by the fund can be transferred to a new scheme. If the new scheme is a money purchase scheme, the balance of advantage will lie with the releative investment performance of the the two schemes and with the charges levied for running the scheme.