What actually happens to a pension after I leave a company? Can I still interact with the pension?
29 July 2021
Question by Holly
Hi there! Love the website. I have a question about workplace pensions. I have a few now as have moved jobs every couple of years or so. Just wondering what are the thoughts around transferring these old pensions to somewhere like Pension Bee. Or to take it right back to basics. What actually happens to a pension after I leave a company? Can I still interact with the pension? Is it fine to just leave it or is there better ways to make them work harder? Thanks!
Answered by Ian Else
Very few people stay in a job for life nowadays, so you are not alone in accruing a few pensions.
The government are developing a pensions dashboard which will allow people to access and view all their pensions in one place, but that is still a few years away. In the meantime, if you are looking to simplify your pensions, consolidation is the only option for the time being.
It is important to consider both the benefits and drawbacks, one potential drawback of transferring any pension is the loss of safeguarded benefits. Some pensions, especially older ones have additional benefits such as guaranteed annuity rates, known as GARs or guaranteed growth rates. These benefits can be extremely valuable, and you should never surrender them without getting professional financial advice first. Fortunately, if you use PensionBee they check whether you have any of them with your existing provider before transferring.
There are two further options available to you.
If you are a member of your current workplace pension scheme, you may be able to transfer your other plans into it. Your existing pension scheme will not check to see if you have any of the safeguarded benefits we have already mentioned, so you run the risk of making a costly mistake. It’s worth noting that pension providers are not allowed to transfer plans that are valued at over £30,000 and have safeguarded benefits without you taking financial advice first, so there is a safety net.
Finally, you can leave them where they are. Once you leave employment and are no longer contributing to the pension, the plan becomes what is know as paid-up. All that means is that there are no further contributions being paid. It doesn’t stop you “interacting” with the pension, that means you can still manage and change the underlying investment funds or change the level of risk you are taking. The funds values will still continue to grow over the medium to long-term.
The other thing you should consider are costs. All pension plans have what is known as an AMC (annual management charge). These costs can have a major impact on your returns, so it’s important that you don’t transfer to a more expensive plan without a good reason. I’ve looked on the PensionBee website and their costs for a small pension range from 0.50% to 0.90% per. While this is by no means expensive, if you’re a member of an auto enrolment scheme at work, you should check the ongoing costs of that plan, they are often good value at around 0.35% per annum.
Founder & Financial Planner
I started working in financial services in 2008. Prior to that, I sailed professionally, working for Chay Blyth's BT Challenge. I've always wanted to help people, but was never smart enough to be a Doctor, so I help people with their finances instead. I'm passionate about offering cost-effective advice to as many people as possible.