New year, new you which often includes a new job. January is the most popular month for a career change or just a change of employer. Our workforce is far more mobile now than 30 years ago. Previously, it was the norm to start work with a company in your early 20s and continue to retirement age before drawing down your company pension. In more recent years, the trend has been to switch jobs more regularly; be that for better pay, better work conditions or a better work life balance. However, a too often overlooked element of leaving your job is what to do about retained pension benefits with your former employer.
There are a number of options available to you, let’s weigh up your choices.
Do nothing
This can be the most common approach, but it is usually not the best.
There are a couple of things to consider:
Firstly, how much control will you have over your pension? Will you be able to make investment choices, usually as a deferred member this is difficult? There are cases where deferred members benefits are moved out of investment and sit in cash once they leave. Once you account for fees and inflation these such cases are certain to lose money on their pension.
Your former can also move the pension to a new provider without consulting with you. As a deferred member you will have no input into how it is invested at this point. It is commonplace for employees to receive financial advice on their pensions when they are employed but once they leave, they will usually lose this benefit.
Now is a great time to review the quality of the pension in the job you’re leaving. Has it performed well? Are the charges reasonable? Is the provider responsive, informative, and transparent?
If the answer to any of those questions is no, it may be time to take your pension funds with you.
Move the pension to your current scheme
This is not always an option as some schemes will not allow it but moving pensions from previous employment to your current scheme has the advantage of keeping everything together and ease of administration.
This can be a good option for someone who has built up a small pension fund with a previous employer. You have less pension pots to keep track of and you have full visibility of exactly what your pension is worth, helping you calculate what it will be worth at retirement.
The cons are that you are missing an opportunity to move the pension into your own name. The same arguments around control, charges and investment choices persist. You are bound by scheme rules around access which are usually more stringent than a pension which is owned exclusively by you.
Move your fund to a pension in your own name
This is usually done using a personal retirement bond (PRB) but there is also the option of a personal retirement savings account (these are usually more expensive).
This option allows you to cut the chord with your previous employment and have the pension in your own name. You have full autonomy over where your fund is invested (with the help of your financial advisor) and you can choose from a vast range of different PRB providers to ensure you get the most suitable product. Company pension schemes are often limited in their fund selection options, however, through a PRB you will have a vast range of possibilities to choose from.
The biggest advantage to moving the pension to an account in your own name is around access. When part of a company pension scheme you are bound by scheme rules which in most cases will not allow you to access your pension until age 65.
When you invest in a PRB you can access your 25% tax free lump sum from age 50. This flexibility of access is a huge draw to using a PRB. By keeping it separate from your current pension this also means that you could decide to cash in a smaller portion of your pension without having to crack open your entire pension portfolio.
The PRB is a great option for many who have left a pension with a previous employer, however, each person’s circumstances will differ and the most important thing to do is get good financial advice around your options. A good financial advisor will point you in the right direction and develop a plan specific to your needs.
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TESTIMONIALS
My initial meeting with Darach was as a Lecturer in LIT who will have less than 40 years- service at retirement. After a completing a review, I had a clear understanding of how my pension worked and how best to optimize it going forward.
I have found Darach to be very friendly, knowledgeable, no way pushy and quite transparent in his recommendations. I would strongly urge you to have that initial consultation. My experience of Honan Financial Services has been a very positive one both personally and financially.
I was looking for alternatives to saving in the bank as there was little to no growth to be had in their savings accounts. Honan FS made it very easy to invest in a multi asset fund which meets my long-term goals. I’d recommend Honan FS to anyone looking for advice on any aspect of their financial planning.
When taking out our mortgage we were offered mortgage protection by the bank. After a review with Darach we found a policy which was more comprehensive and better value for money. We were also able to optimize our savings through a regular savers policy which has achieved far better returns than what was on offer with the bank.
At the start of 2021 we both decided to do a health check on our financial status. We both had occupational pensions schemes left from previous employers and we reached out to Darach for assistance and advice on transfer options. Darach was excellent in helping us map out our future financial needs , determining our outlook to risk , providing sound financial advice and discussing best performing options to suit us
Darach dealt on our behalf with the previous pension providers and their associated agencies and the whole process we felt was very professional and a seamless transaction to us. Because of interest rate returns on bank deposits /post office being virtually zero and essentially loosing money on deposit we also seeked advice on alternative investment products for the mid to long term.
We were looking for products that gave a good rate of return and that we could lock away for 10 years plus to help with education funding. Both requirements were met very professionally by Darach and his team. We are both very happy we reached out to Darach . The only regret was we didn’t do this a few years earlier but better late than never.”
Darach has looked after my pension for a number of years and once he setup Honan Financial Services, it was an easy decision to move my pension / financial planning with him. Darach continuously demonstrates a thorough and rigorous approach to customer service and his clients individual’s needs. He is thoroughly professional, exceptionally friendly and the best in the west in my opinion. I would highly recommend him to all.