Pension checklist for changing job
By Kirsten Hastings, 12 Jun 18
It can be easy to forget about pension benefits when you are swept up in the excitement and stress of changing job. But as workplace pensions can be very generous, it pays to keep on top of any pots that have been built up, says Fidelity International’s Ed Monk.
“It is also very important to understand if your old scheme comes with any benefits that you will be giving up by leaving,” Monk warned. “An old scheme might allow you to take your money earlier, for example, or will perhaps allow you to buy a higher income in the future via a ‘Guaranteed Annuity Rate’ (pensions that started in the 1990s and before are more likely to include these). If an old scheme includes such features, you may lose out by giving them up.
“In some circumstances it can be advantageous to have access to pension pots that, on their own, amount to less than £10,000 ($13,390, €11,354).
“That’s because pension rules allow you to access pots of under £10,000 without triggering a test of the Lifetime Allowance – this is the total amount you can build up over your lifetime that will enjoy full tax benefits. If you go over the allowance you will generally pay a tax charge on the excess when you take a lump sum or income from your pension pot, but this does not happen when small pots are taken.
“Additionally, taking a pension pot of under £10,000 means you can continue contributing to a pension as you had been doing before. This is not the case if you have accessed taxable pension money from larger pots. In these instances, the contributions you can make to a pension are then limited to £4,000 under a rule called the Money Purchase Annual Allowance.”
Tags: Fidelity | Lifetime Allowance | MPAA | Pension
