Traditionally individuals would join a company and many would remain in the same organisation for the entirety of their working life. If they had the option and inclination to do so, they would contribute to an occupational pension scheme, which would then fund their retirement. Today, however, job turnover is considerably higher, and as a result employees are potentially faced with difficult decisions regarding their pensions when they change employment.
When considering pension contributions alongside a new salary offer, it helps to understand your actual take home pay using our free Income Tax Calculator.
Personal and Occupational Schemes
In the first instance, it should be noted that there is a distinction in these cases between personal and occupational pension schemes. By definition, a Personal Pension Scheme is tied to the pension holder as opposed to the employer. This means that, regardless of any changes in employment, your personal pension will remain constant as long as you continue to make regular contributions. As a result, a personal pension plan can offer significant advantages over a series of occupational pensions if you happen to change employment frequently.
Even if you have an Occupational Pension Fund, however, this will still be transferable when you change employment. Often occupational schemes have been contracted out to private pension providers. If this is the case, you will need to contact the company that runs your occupational pension in order to receive a statement telling you how much your fund has accrued. In these instances, you may have a number of options.
To begin with, it is important to note that it will be highly beneficial for you to contribute to an occupational pension scheme if it is on offer (see our article Why Join A Pension Scheme?). As a result of the likelihood of your employer also contributing to your fund, there are few circumstances in which a private pension represents a better deal. Therefore, you are likely to wish to cease making contributions to any personal pension and swap to an occupational scheme. If you choose to do this, you should remember that you may incur charges from your personal pension provider.
Similarly, you may wish to close your personal fund altogether and transfer a cash equivalent to your new occupational pension scheme. However, some occupational pension providers are not willing to take such payments. You should always contact your new provider and your existing provider before taking any such decisions, as your personal pension provider will also charge for this service.
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What Are FSAVCs?
Another potential option is to keep your personal pension open but have it transferred into a Free-Standing Additional Voluntary Contribution scheme, or FSAVC. This means that you can keep your existing fund open and use it as an extra 'pot' into which you can place additional voluntary contributions. Some private pension providers will offer to make this conversion for free, and so it is certainly an option that is worth looking into.
If you choose to change from a personal to an occupational pension, you will need to inform the Department for Work and Pensions in order to ensure that you are paying the correct National Insurance Contributions. If you had been contributing to a personal pension, you will no longer receive contributions from the DWP, but will instead pay NICs at a lower rate. You should contact your Tax Office in order to make sure that you receive the correct form.
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