Did you know that UK workers change jobs every 5 years, on average, according to research by LV? A career change is often a great decision, but it can cost you in retirement if you are not careful. It can take as long as three months to get enrolled on the company pension scheme when you start a new role. In that time, many people do not make pension contributions – which can add up to £1,000s lost once you reach your late 60s. At WMM, we offer this short guide to help you navigate job changes without compromising your retirement goals.
Keep track of National Insurance
Your State Pension is based on your National Insurance (NI) record. At least 35 “qualifying years” are needed to get the full new State Pension once you reach your State Pension age. In 2021-22, this amounts to £179.60 per week – or £9,339.20 per year – so it is worth building the best record you can.
Most people will automatically pay NI contributions via their employer, deducted from your wages via the PAYE system. When you change jobs, therefore, your new payslip should reflect this. Yet it is not unheard of for administrative mistakes to be made. Always check payslips – especially if you start a new role – and cross-check the deductions against your NI record.
If you have just started out on your own as self-employed, make sure you pay your NI correctly via your Self Assessment tax return ahead of the deadline.
Start a personal pension
A personal (or “private”) pension can be a great way to “take your pension with you” when you change jobs, as it is not tied to any employer. The disadvantages are that you need to manage the pension yourself, and you may not receive any employer contributions to it.
However, it does mean that, in the first 2-3 months of a new role (when you may be waiting to enrol on your workplace scheme), you still have a pension to contribute to. It could also be a useful place to transfer funds from old workplace schemes into. This can help you avoid trying to manage too many old workplace pension pots leading up to retirement.
Be careful not to assume that any loss in pension contributions will be compensated for with a higher salary, when you move jobs. This may not be the case, and it would also be a shame to miss out on the compound interest growth you may have achieved with those extra months of pension contributions. If you have not yet started a private pension, then our team here at WMM would be happy to speak with you about your retirement plans. This can be a great opportunity to not only make your retirement more robust to career change, but could also help you reduce investment fees and increase your real returns through better strategy.
Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM.
You can call us on 01869 331469
This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).