With each job you have, you’re likely to have been contributing towards a workplace pension scheme with that employer. When you leave a job, your contributions to that pension fund will cease. However, that doesn’t mean you’ll lose control of what happens to the money in that pension going forward.
How do workplace pensions work?
Auto-Enrolment
In an effort to encourage more workers to save for their retirement, the government introduced a scheme called Auto-Enrolment as part of the Pensions Act 2008. As of 2018 it’s now compulsory for every company in the UK to automatically enrol its eligible staff in a workplace pension scheme.
To meet the conditions you must:
- Earn over £10,000 per year
- Work in the UK
- Not already be a member of a suitable workplace pension scheme
- Be aged at least 22 and haven’t yet reached State Pension age.
If you earn less than £10,000, but above £6,240, your employer doesn’t have to automatically enrol you in their scheme. However, if you ask to join, your employer will be unable to refuse you and must make contributions on your behalf.
Contributions
Once you’ve been enrolled by your employer, they’ll be required to make a minimum contribution by law, and you’ll also have to make a minimum contribution.
- Employees have to pay a minimum of 5% of their annual salary into their pension
- Employers have to pay a minimum of 3% of an employee’s annual salary into their pension.
Any money you contribute to your pension as an employee will be eligible for tax relief from the government. You can use our Pension Tax Relief Calculator to see how much in tax top ups you could receive.
Types of workplace pension
There are two types of workplace pension, defined contribution pensions and defined benefit pensions.
Defined contribution pensions are the most common and have a value based on how much money you’ve paid into your pension and how your investments have performed. If you’re auto-enrolled in a workplace pension scheme it’ll usually be a defined contribution pension.
Defined benefit pensions are less common and are only typically offered to those working in big companies or the public sector. The value of the pension’s based on the number of years you’ve been a member of the scheme and your salary.
What happens to my pension when I change jobs?
When you and your former employer stop contributing towards a pension, you can just do nothing and leave your plan as it is. It’ll still belong to you, and your money will still remain invested and change according to the stock market. However, if you want to be more hands on, there are a few options available to you depending on your circumstances.
Continue to make contributions
Some schemes will allow you to continue to make regular or one off personal contributions to a pension after you’ve left a job, you just won’t receive any more from your previous employer. You can speak to your provider if you’re unsure if this is possible according to the terms of your pension plan.
Transfer
You may be able to move the money accrued from your old pension scheme to one set up by your new employer or to a personal pension that you’ve set up yourself. There’ll be different rules depending on the type of pension you have.
Get a refund of your contributions
Some defined benefit schemes will allow you to claim the amount you’ve contributed back if you’ve only worked for an employer over a short period of time. Schemes such as NHS and Teachers’ Pensions will generally offer to refund your contributions if you worked there for less than two years.
How do I find out if I have a pension from a previous employer?
Due to the recent pension law change, you’ll be enrolled in your workplace pension scheme automatically, unless you’ve opted-out and are no longer paying into the scheme.
Your current pension: You can find out more information about your pension by talking to the HR department at your place of work. They’ll be able to share details of the company scheme, including how it works and who your pension provider is. You should also receive regular statements from your provider detailing your policy number and their contact details, as well as an update on the performance of your investments.
Old pensions: Any pension that you stop paying into is considered to be an old pension. Most people have several old pensions that become dormant as soon as they leave a job and stop making contributions. If you remember paying into a pension at your previous workplace and didn’t do anything with it when you left the company, it’s likely you’ll have an old pension. You can check back through statements and old payslips to find out more information.
Lost pensions: If you’re confident that you’ve paid into pensions in previous jobs but can’t remember how many or who they’re with, there are a few things you can do to find a lost pension. If you know either the employer or pension provider’s name you can search the government’s free database.
The Pension Tracing Service helps you find contact details for a workplace or personal pension scheme so you can get in touch with them directly. It won’t, however, confirm if you have a pension or provide any details on its value so you’ll need to contact your pension provider directly.
If you choose to move your old pensions into a single plan, your new provider may be able to help you track down your old pensions. When you transfer your workplace pensions to a new PensionBee plan we’ll contact your old providers on your behalf and handle the transfer process from start to finish. You just need to provide a few pieces of information such as the pension provider name and policy number (if you have it to hand).
Workplace pension rules
All employers must offer a workplace pension scheme by law and there are several rules you’ll need to be aware of.
- If you’re eligible for Auto-Enrolment, your employer must enrol you in its pension scheme, although it can delay your enrolment date by up to three months.
- If you don’t meet the criteria for Auto-Enrolment your employer can’t refuse you access to its pension scheme. But it won’t have to contribute to your pension if you earn less than £520 a month, £120 a week or £480 over a four-week period.
- Both you and your employer must make the minimum pension contributions set out above.
- You’re allowed to opt-out of a workplace pension scheme at any time and can claim a refund if you do so within one month of joining.
- You should never face any discrimination from your employer for either joining or remaining in a company pension scheme, and you should never be encouraged to opt-out.
Can I transfer my pension from an old job?
It’s relatively straightforward to move a company pension from one provider to another.
- You might choose to transfer your pension out of necessity, if you’re changing jobs or the scheme you’re in is closing.
- You can also move your pension if you’re moving overseas, have found a better scheme or are looking to transfer all of your old workplace pensions into one plan.
While you won’t need to seek permission to complete any pension transfers, it’s a legal requirement to seek the advice of an Independent Financial Adviser if you’re thinking about moving a defined benefit pension worth over £30,000.
Can I cash in a pension from an old employer?
Under the Pension Freedom rules, you’ll be allowed to access your workplace pension once you reach the age of 55 (rising to 57 from 2028). It’s not possible to cash in your pension before this time, no-matter how old it is or what it’s worth, and you should avoid any scams that claim to be able to help you access your pension early.
Once you turn 55 (rising to 57 from 2028), you can cash in your old company pension in a number of ways. The first 25% you withdraw can be taken as a tax-free lump sum, and any withdrawals after that will be charged at your usual rate of income tax. Popular options include drawdown, which keeps your money invested until you need it, and purchasing an annuity, which pays a guaranteed income for a set period.
At any time, before 55 or after, you can move your old workplace pension to a new scheme and combine all of your old pensions into one. Though you might not be able to withdraw the money in your pension straight away, you’ll always have control over how it’s invested.
Can I lose my pension if my company is sold?
In most cases, a workplace pension’s held by a pension fund rather than the employer. Therefore, if the company is sold or even goes bust, your pension won’t be affected. Some employers like the NHS manage their own pension schemes.
If I get sacked, what happens to my pension?
If you lose your job, whether you’re fired or through redundancy, your employer will stop paying into your pension. The pension will continue to be managed by your pension provider and will continue to grow in line with its investments. You’ll be able to transfer your pension or combine it with other old pensions, if you wish. Your employer can’t take away your pension.
What if I have a defined benefit pension?
Moving your pension savings can be a little different when it comes to defined benefit schemes. Before a transfer can take place, you and your new provider will usually need to request that your old scheme provide a cash value of your pension.
Once a value’s received, it will normally be guaranteed for a period of three months, which acts as the deadline for you to transfer your money across.
Defined benefit schemes will often require you to fill out transfer forms which means that the process can take a bit longer than if you’re transferring a defined contribution pension. You’re also required by law to take independent financial advice if your guaranteed transfer value is more than £30,000.
Can I set up a new pension after I leave my job?
Thanks to Auto-Enrolment, it’s now compulsory for any new employers to set you up with a workplace pension. However, if you don’t continue to work in these circumstances, then there may be more to consider.
What are my pension options if I stop working?
Workplace pensions are not the only option available to you, and you can still have a pension even if you’re not in any kind of employment. If you’re out of work, there’s the option to have a personal or stakeholder pension. You’ll have to set it up yourself, but this can be a good way of keeping your retirement savings on track if you’re able to continue to make contributions.
It’s also worth remembering that you’ll still have pensions from your previous periods of employment, which you may be able to continue contributing to depending on the scheme.
What happens to my pension if I become self-employed?
Unlike those employed by third parties, there’s currently no Auto-Enrolment scheme for people who are self-employed. If you decide to work for yourself after leaving a job, you’ll be responsible for setting up your own pension.
It can be easy to forget to set up a pension with all the other admin that comes with self-employment, but it’s still very important to have one so that you’ve adequate savings when you retire. You still have the option to set up a personal or stakeholder pension, or you can join a scheme especially designed for the self-employed like the PensionBee self-employed plan.
Keeping track of old workplace pensions
Moving all of your pensions into one simple plan can help you keep track of how your savings are performing. Rather than managing multiple pension pots, PensionBee can help you take control of your savings by bringing everything together in one place.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 06-04-2024
