Stylist’s financial therapy series tackles real issues from women about their financial matters. Each week sees a new issue discussed with a financial expert to destigmatise the way we talk about money - this week it’s dealing with questions surrounding your pension when you move jobs. Lisa Conway-Hughes, chartered financial adviser and founder of misslolly.com tackles reader Carrie Harwood’s question about company pensions…
“I’ve been working for six years, and in that time, I’ve held four different full-time jobs. In each of these, I’ve signed up for the company pension scheme.
The amounts I’ve paid have varied from job to job, and I was at each of these companies for different amounts of time.
I’ve been in my current job for 18 months, and am now making monthly pension contributions into yet another new workplace scheme. And, while I’m happy with my situation and the benefits this new pension offers me, I can’t help but wonder what happens to the money I’ve previously paid in.
I have no clue how to consolidate the existing pensions I have, and whether that’s even an option.
I don’t even know which pension company I’m with for each of the businesses I’ve worked for (I don’t recall receiving any correspondence from any of them), and what the individual clauses might be for each one.
For example, I’ve heard you can sometimes get charged for switching pension schemes, or that in some cases, the funds are locked in for a certain amount of time.
While these pension pots might be small, they are still contributions I’ve made to help safeguard my financial future.
How do I go about making sure these funds don’t get lost? Is consolidating my pensions the right thing to do?”
“This is a common situation a lot of people find themselves in – especially as we’re likely to have 12 jobs and 12 potential pension pots in our lifetime. Don’t worry, as it’s easy to get on top of where they are.
1. Search for the pension tracing service
Google ‘pension tracing service’ and the government website will prompt you to enter the name of your employer. You will then be given the contact details for the pension scheme/HR, and you can write to them to request your address be updated – I would then request a recent statement.
While doing this, I’d also recommend making a spreadsheet that logs all the pension scheme contact details plus the pension reference number (often your National Insurance number).
This will mean that, should you move again, you can easily update the providers of your new address and won’t lose track of them again.
2. Make the most of your pension
Ensure you’re paying in what you need to get the most you can out of your employer. So, if your employer matches all contributions up to 5%, consider also contributing 5%.
Otherwise, you’re losing out on free money from your employer.
Since 2012, the government’s been rolling out Automatic Enrolment, a scheme that makes it compulsory for all employers to offer staff a pension.
All employers must now pay in at least 3%, you need to pay in 4% , and the government adds in 1% tax relief.
Your employer may do more than this, so it’s best to check your contract or pensions handbook to see what you’re entitled to.
3. Speak to a professional
With regards to transferring/consolidating your pensions, this isn’t a straightforward answer I can answer without knowing more about your situation and the specific pensions themselves.
Consolidating your pensions may or may not be the right thing to do. It depends on what type of pensions you have and if there are any existing guaranteed benefits you would lose by transferring.
This can be a complex task, so if in doubt get a professional to do it for you. However, a good place to start would be to ask your pension providers the following questions… What am I currently invested in? Can you send me a list of all the other investment options I can choose from? And what’s the total cost of my investment?
I’d then ask for the provider to send a breakdown of every charge applicable to that pension.
4. Use a fund investment tool
Once you know what you’re invested in, you can then use a fund investment tool to look at the performance. I use trustnet.com. However, investment performance isn’t what it’s all about – especially if good performance has come with a huge amount of risk.
If one pension provider offers you a wide range of investments, is good value for money and seems the obvious choice, I’m afraid it’s not as simple as that.
You need to make sure that by moving you’re not missing out on any protected benefits. I recently had a client who has 95% tax-free cash at retirement. Most pensions have 25%! So, if he had moved his pot, he would have lost this benefit.
5. Remind yourself of your National Insurance contributions
Don’t forget that as you pay National Insurance contributions, you’re also building up your entitlement to the state pension.
The state pension is currently payable for most from age 66, and you’ll qualify for the full state pension (£168.60 per week currently) if you’ve paid National Insurance for 35 years.
If you have less than 10 years of NI contributions, you’ll not be entitled to any state pension at all though.”
NatWest’s head of digital investing, Nick Johnson, recommends ways to invest in your future:
“Investing doesn’t need to be complicated. In fact, if you are employed it’s likely you already an investor as you’ll have been auto enrolled into your pension scheme at work.
“If you want to save for shorter term goals than your retirement then consider an ISA. You can invest from as little as £50 and, unlike a pension, you can access the money whenever you want.
“Aim to invest regularly. That sounds basic, but it’s all about building up a good investing habit. A simple way to start is to invest in a diversified fund – that means putting your money in different investments, which helps to spread the risk. This also makes it easier to manage your investments over time.
“One thing to remember is that there is always a risk involved. Be aware that the value of your investments can go down as well as up, and you may not get back the full amount that you originally invested.”
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