For many of us, having “a job for life” simply isn’t the case anymore. Society has changed immeasurably over the last 30 years and now we find ourselves in a world where lifelong learning is a precursor for having several career changes.
While there are some advantages to this it can also throw up some challenges, not least of all how it will affect our pensions - here we take a look at how changing your career can affect your pension plan.
Underlying Considerations
There are 2 issues that you should consider before making any decisions regarding how to manage changes to your pension plan.
First, it is important to consider how close you are to retirement.
If you are approaching retirement, and will only be working for a few more years, it may be a good idea to invest in more predictable,lower-risk investments. This is because you will have less time to recover if your investments take a downturn.
If, however, you are younger and have a long time until retirement, you may want to consider more adventurous investments that are riskier but offer the potential for much higher returns.
Next, you need to evaluate the pension that your new job has to offer. Don’t forget you can opt out of the company pension scheme should you wish and seek a better deal elsewhere. If you find yourself unsure as to what to do companies like Tilney offer a full financial planning service that can help you get on the right track.
Types of Pension Scheme
There are 2 main types of pension scheme. A workplace pension scheme is the most common way to save for your retirement. Here you contribute, tax free,each month and it is also common for your employer to also contribute. Some of these plans will allow you to transfer the capital accrued when moving to another job. Others will require that the capital is left where it is until you reach retirement age and it’s well worth finding out about this before you start paying in to a new scheme.
A private pension is one where you alone pay into the scheme and as it is not associated with any particular employer or sector, there is no need to change or transfer it when you change your job.
Another type of scheme to consider if you are changing jobs is a Self Invested Personal Pension (SIPP). Here you manage the how and where your money is invested - while these can offer a great rate of return, they often come with exposure to risk.
Mix and Match
It is also worth bearing in mind the option of having more than one scheme. So, for example, you may opt to pay into a workplace pension scheme and also a SIPP.
Understanding the nuances of the different types of schemes available is key to managing your pension effectively, particularly when you are about to change career paths.