What Happens to Your Pension When You Change Careers

When people tell me they are thinking about changing careers, the pension question usually comes up a little sheepishly, near the end. Will I lose what I have built up? Do I have to start again? It is a sensible worry, and the short answer is reassuring: in most cases, the money you have already saved does not vanish because you change jobs.

What does change is how organised it all is. A career change, especially one that involves retraining, self-employment or a spell of lower pay, tends to leave a trail of pensions behind it. None of that is a disaster. It just needs a bit of housekeeping, and a bit of caution before you move anything.

Workplace versus personal pensions

Broadly, there are two kinds of private pension. A workplace pension is set up by your employer, who usually contributes alongside you. A personal pension is one you arrange yourself, often used by self-employed people or anyone who wants a pot that is not tied to a job.

Within workplace pensions there is a further split that matters a great deal. Some build up a pot of money based on what goes in and how investments perform. Others promise a particular level of income in retirement, often linked to your salary and how long you worked there. The second kind usually comes with guarantees that are hard to replace.

Separately, many countries have a state or government pension based on your work or contribution record. Gaps in employment or self-employment can affect it, so it is worth checking your record with the relevant official service, particularly if your career change involves time out.

What happens when you leave

When you leave an employer, contributions into that workplace pension normally stop, but the money already there usually stays invested in your name. You can generally leave it where it is, and it will be paid out under the scheme's rules when you reach the relevant age. Your new employer, if you have one, may enrol you in a different scheme.

The biggest practical change for many career switchers is losing employer contributions, either during a gap or because they become self-employed. That is the part of the pension most worth planning around, because it is often the part people forget.

Keeping track of old pots

By your forties, it is not unusual to have pensions with three, four or more former employers, some of which may have changed name or merged since. People move house, forget to update their address and lose track of pots entirely. The money is still there; it is just waiting for you to claim it.

If you cannot find a provider, many countries offer an official pension-tracing service that can help you locate old schemes, usually free of charge.

Before you transfer anything

Combining old pots into one can be tidy, and sometimes cheaper. But a transfer is not automatically the right move. Some schemes charge exit fees. Some older pensions carry valuable features, such as guaranteed income or guaranteed rates, that disappear the moment you move the money. And once a transfer is done, it often cannot be undone.

Before transferring, ask each provider what you would give up, what it would cost, and how the charges and investment options compare with where you would move it. Be very wary of anyone who contacts you out of the blue about your pension, or who promises unusually high or guaranteed returns.

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