Job-changers: Take the opportunity to set your pension pot up for life

Starting a new job is a natural time to reassess your pension planning. Your pensions are the bedrock of retirement planning. If they are on ‘auto-pilot’ – ie. you don’t know how they are invested, or have lost track of them entirely – then your entire plan for re­tirement is on auto-pilot too.

Here we highlight how savers who have started a new job, or are set to take up a new role, can change their pen­sion planning for the better.

Review pension contributions

Typically if you’re starting a new job, your salary will have increased. You may be able to contribute more to your pen­sion plan as a result. Contri­butions to your workplace pension are deductible against income tax, subject to limits and restrictions. Higher and additional rate taxpayers save 40% and 45% respectively on their contributions.

The tax-free personal al­lowance of £12,570 for UK adults is reduced if your ad­justed net income (total in­come after pension contribu­tions) is over £100,000. If you earn between £100,000 and £125,140 you are effec­tively paying 60% income tax on that portion, but pension contributions can see you regain some (or all) of your personal allowance and make substantial tax savings – see example in the table below.

Don’t forget about old workplace plans

Many savers forget about old workplace pensions entirely, which is especially the case with smaller pots. Another common mistake is to leave old (or even current) plans on auto-pilot. Workplace pen­sions typically have a limited choice of investments. You are invested in a ‘default fund’, which is designed for the ‘average’ employee.

Many workplace ‘life­style’ funds automatically reallocate from stocks to­wards ‘safer’ assets in the years leading up to a pre-de­termined retirement date. If you have decades of investing left ahead of you, automatic de-risking may be ill-suited to your long-term goals.

Does consolidating pensions make sense?

A job change can be a good opportunity to consolidate your previous workplace plan within your new scheme, re-evaluate your appetite for risk (allocation to growth or defensive assets), or unite your older workplace pension plans within a self-invested personal pension (SIPP).

Combining old schemes into a SIPP plan allows you to set one ‘master’ invest­ment strategy that matches your risk profile and goals. It can also reduce the adminis­trative burden of monitoring multiple plans, save on fees, and enable you to access your savings more flexibly.

However, you should be careful to ensure you will not lose out on any existing pen­sion benefits by transferring/consolidating. These could include valuable safeguarded benefits that would be lost on transfer.

Evaluate workplace contributions

Your new employer could pay a generous percentage contribution, match your contributions, or stick to the statutory levels. The amount your employer contributes may dictate the amount you contribute to your plan.

Over 55? Watch out for the hidden trap

Once you start accessing pension benefits you are lim­ited to a maximum pension contribution of £10,000 in each tax year. If you plan to make substantial contribu­tions in the future you may wish to leave your pension untouched, and take advan­tage of the generous £60,000 contribution allowance that most savers (except the high­est earners) are entitled to.

A job change can pro­vide a great opportu­nity to finesse your work­place pension, as well as your personal pot. To learn more call 03300 564 446, or get in touch via our contact form.

This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.