What happens to my pension when I leave employment?
Before retirement, it’s common to collect several pensions from different jobs.
Upon leaving employment, active pension scheme membership will stop, but your pension is not lost. You may have heard the term ‘frozen pension’ or ‘preserved benefits’. These are phrases used to describe dormant pension membership. You will continue to receive statements and updates about your pension but may have limited options.
Review your pension upon leaving service
When leaving active pension membership, it’s important to conduct a pension review. You could just ignore the pension and review it when it’s time to retire, but of course it’s better to consider that pension. If you have a defined benefit scheme, search our pension scheme database for contact details and headline scheme information.
Does it have the right pension investment strategy?
Think about when you will retire. You should reduce your investment risk if you’re within 5 years of your target retirement age. If you have a long way to go, consider a diversified investment strategy to best position your funds for long-term growth.
Ask your pension provider for a funds list and use online tools like Trustnet to review your portfolio performance. This tool also allows you to research the wider investment opportunities available. While all funds may not be available under your existing plan, a private pension such as a SIPP has a wider range of options.
The investment strategy for a defined benefit scheme is managed by scheme trustees. Ask for a funding update to check your pension is healthy.
What are the costs are deducted from the pension fund?
Pensions aren’t free! In some way, the people running the pension and managing your funds are being paid. Ask your pension provider for a breakdown of costs being deducted from your pension money.
For DB scheme members, your pension is run and managed by the sponsoring company as part of your past employment package.
Can you view it online and keep updated on its value?
A lot of modern employer pensions now come with an online portal. Make sure you’re registered and login at regular intervals to monitor your plan.
Would it be better moved to your new employer pension or a private plan?
Employer pensions can be limited. For most, managing one pension helps streamline planning and put a proper strategy in place. However, company pensions can be low cost and work well as a simple pension savings plan. Research your options and ensure and changes improve your long-term retirement strategy.
Types of workplace pensions
Employers offer various types of company pension arrangements for their staff. Many companies offer different pension packages according to seniority.
When leaving employment, you will have several options for your pension plan. We’ve summarised the key points to consider against the main types of employer sponsored schemes.
|Defined Benefit Scheme||Defined Contribution Scheme||Group Personal Pension||Workplace Pension – e.g. Nest|
|Cash-in option||If under 2-year scheme membership, a refund of contributions may be available||No withdrawals allowed until minimum retirement age (currently 55 years)||No withdrawals allowed until minimum retirement age (currently 55 years)||No withdrawals allowed until minimum retirement age (currently 55 years)|
|Pension management||Managed by scheme trustees – no input from member||Can control investment strategy – ask for a funds list||Can control investment strategy – ask for a funds list||Limited options|
|Valuation||Request a CETV||Investment portfolio value||Investment portfolio value||Investment portfolio value|
|Self-administration||Not applicable||Administered by member||Administered by member/adviser||Administered by member|
|Costs||No explicit costs||Costs deducted from pension fund||Costs deducted from pension fund||Costs deducted from pension fund|
|Investment options||Investments managed by trustees||Limited range of investment options||Limited range of investment options||Limited range of investment options|
|Retirement options||Obtain a retirement quote||Purchase an annuity or move to an income drawdown plan||Purchase an annuity, or enter income drawdown||Purchase an annuity or move to an income drawdown plan|
|Transfer-out option||Request a CETV, a pension transfer value||You can ‘switch’ your pension, taking funds to a new registered pension arrangement||You can ‘switch’ your pension, taking funds to a new registered pension arrangement. A GPP may also offer the option to convert to a PPP||You can ‘switch’ your pension, taking funds to a new registered pension arrangement|
Keeping your employer pension as it is
If you decide to keep your pension from former employment, check on it regularly. Ensure you keep the pension provider updated with your contact details. Make a log of your pension plans, their benefits and value. This will help when you review your pensions in the future and allow you to manage your retirement strategy.