Can I cash in a pension from an old employer?

If you’re an employee, chances are you’re going to work for more than one employer in your lifetime. Gone are the days of working in one job from the age of 18 until retirement – instead, UK residents are changing jobs on average 5 times in their working lives (according to AAT).

But if you’re a master at job hopping – or you just fancy a change – you’re probably wondering what will happen to your workplace pension (that’s the pension your employer set up for you) when you change jobs. Don’t worry, your hard-earned savings won’t go to waste. Here’s the lowdown.

Can I cash out my pension if I leave my job?

Any money you’ve built up in a workplace pension is yours. And it will stay yours – even if you leave your job! 

That means you can cash in a pension from an old employer no problem. In other words, you can get all those tasty savings in your pocket as cash. Hooray! 

BUT (yep, there’s always a but!), chances are you won’t be able to do so straight away. In the UK, most pensions will make you wait until you’re at least 55 before you take any money out of your pension pot (57 from 2028). So, unless you’ve reached a certain age, you’ll need to wait a bit before dipping into those lovely savings.

That all sounds easy enough, right? There’s just one problem… by the time you retire, you might well have forgotten all about your old job – and the juicy pension that came with it! Especially if you have lots of different jobs throughout your working life.

For this reason, it’s really important to keep a record of all your old pensions – you don’t want to go losing one, even if there’s only a small amount of money in there (every little helps!). Alternatively, you can choose to lump all your old pensions together in one pot to make them easier to manage. This involves moving your savings from one pension to another, known as a pension transfer – more on this below!

Nuts About Money tip: Think you might have old pensions you’ve forgotten about? Don’t panic. You can track down any lost pensions using GOV.UK’s find a pension service.

What should I do with a pension from an old employer?

Changing jobs? Got a while to go until retirement and unsure what to do with your workplace pension? Well, you have a few options. You can…

1. Transfer it to a personal pension
2. Transfer it to a new workplace pension
3. Leave it where it is

Here’s the lowdown.

1. Transfer it to a personal pension

We’re going to start with what we think is the best – you could choose to transfer your old pension to a personal pension (one that you set up yourself). That basically just means moving your savings from your old pension to a new one. 

You might think ‘that sounds like a hassle’ but we have some good news. It’s SUPER easy to do and your new pension provider will do all the hard work for you. 

Now, you might think that personal pensions are just for people who don’t have a workplace pension – like people who are self-employed (and so don’t have an employer to set up a workplace pension for them) or people who work part-time (if you earn less than £6,240 per year as an employee, you won’t generally qualify for a workplace pension).

But actually, personal pensions come with loads of benefits that workplace pensions don’t. So, this is a great option for you even if you have a new employer who’s going to be providing you with a workplace pension.

First, unlike with a workplace pension, you get to choose your pension provider! That means you can choose a provider that has cheap fees and that’s got a proven track record for growing money quickly. So, you’ll often end up boosting your savings in retirement even more and ending up with a bigger pot to live off in your golden years! 

Plus, if you go for a more modern pension provider, you can usually benefit from handy mobile apps that allow you to track your money and watch it grow – making it even easier for you to save for retirement.

There are lots of great providers out there, but one of our favourites has to be PensionBee. It has great customer service and its slick mobile app makes saving oh-so-easy. We also love Moneyfarm. It’s great if you want to get proper financial advice from a human as they’ll assign you your own financial advisor to help you save!

As well as helping you to grow your money quicker, you’ll also find that a pension transfer will make your savings easier to manage. If you’ve had a few employers in the past and a few different pensions, you can move all your old pensions to your new personal pension so that they’re all in one place and you’re less likely to forget about them! Oh, and you’ll have fewer providers to pay fees to.

On top of all that, if you often move jobs, you can just keep your personal pension going instead of having to move your old pensions again when you change employers. Think about it: you’ll have a pension that’s completely in your control no matter what – each time you move jobs, you can just transfer your latest workplace pension over to your personal pension provider so that your savings can keep growing as quickly as possible without you needing to pay hefty fees for the pleasure.

Pros

• High growth. You can pick a pension provider that has a proven track record for growing money more quickly.
• Low fees. You pick your pension provider, which means you can get access to cheaper fees.
• Good for the self-employed. Great if you’re self-employed or you don’t qualify for a new workplace pension.
• Good to boost savings alongside a workplace pension. Can be used alongside a workplace pension to help boost your savings for retirement.
• Consistent even if you move jobs. You can continue to contribute to your personal pension even if you move jobs again.

Cons

• Leaving fees. Your old pension provider may charge you a fee for leaving (although this will probably be covered by the better performance and cheaper fees!).
• More than one pension. Some people prefer transferring their old workplace pension to a new workplace pension so they only have one pension at once (although having a personal pension and a workplace pension alongside one another is super easy!).

2. Transfer it to a new workplace pension

If you don’t fancy setting up a personal pension, a good plan B could be to transfer your old pension across to your new workplace pension. Again, this is super easy and your new workplace pension provider will sort it all out for you so that you don’t have to lift a finger.

Let’s rewind for a second. Employers are nearly always legally obliged to set up a workplace pension for you, known as ‘auto enrollment.’ Every month, a least 5% of your income will be automatically deducted from your paycheque and will go into your pension. Plus, your employer will contribute at least 3% of what you earn from their own pocket.

So, chances are your new employer will be setting you up a new workplace pension which you can transfer your old pension into. 

This will have quite a few of the same benefits as transferring your old pension to a personal pension. If you have a few old pensions, transferring them all to one workplace pension can help you to manage them more easily. And you’ll only have one pension provider to pay fees to.

In fact, some people prefer it because it means all their retirement savings will be in one place, rather than spread out across a personal pension and the new workplace pension.

However, it’s not quite so great as transferring your old pensions over to a personal pension. 

Why? Well, personal pensions give you more control over your savings – you get to choose your pension provider so you’ll normally be able to access lower fees and find a provider that has a proven track record for growing money quickly. And, at the end of the day, who doesn’t want to boost their retirement income and save on fees?!

Pros

• Easy to manage. By moving all your old pensions to your current workplace pension, you’ll only have one pension to manage and keep track of.
• Only pay one provider. You’ll only need to pay regular fees to one pension provider rather than paying multiple pension providers if you have multiple pensions.

Cons

• Performance. You’ll often get better investment performance with a personal pension provider.
• High fees. You’ll often be able to find cheaper fees with a personal pension provider.
• Leaving fees. Your old pension provider may charge you a fee for leaving (although if your new pension provider performs better than your old one, that could be balanced out).
• Frequent switching. You might end up moving your old pensions multiple times if you keep changing employer.

3. Leave it where it is

Finally, when you leave your old employer, you can just leave your pension where it is and stop contributing to it. This is known as a ‘preserved pension’ or you may also see it referred to as a ‘frozen pension.’

Yes, you won’t be contributing to it anymore and neither will your new employer. But your pension can still make you money!

Let us explain. 

Most workplace pensions are what’s called a ‘defined contribution pension.’ That means they work a bit like a piggybank. You pay into it every month (at least 5% of your income) and your employer also contributes (they’ll normally have to add at least 3% of your income from their own pocket!). However, they’re even better than a piggybank because they’re designed to grow your earnings without you having to do anything at all.

Basically, the money you put into your pension gets invested by experts, which means it’s used to buy things like stocks and shares. As these go up in value, your money should go up in value too, meaning by the time you retire, you’ll have more money to enjoy than what you and your employer actually put in.

If you leave your employer and stop paying into your pension, this means your pension is ‘frozen.’ It won’t grow as fast as it would if you were consistently adding in money. But it will still (hopefully!) grow as your investments continue to grow – although personal pensions will often be able to grow your money quicker!

On the other hand, a few people have something called a ‘defined benefit pension.’ Instead of working like a piggybank like a defined contribution pension, your employer (or ex-employer!) will pay you an income in retirement based on your salary and the number of years you worked for them. 

If you have one of these, it’s almost always best to leave it where it is, as if you move it elsewhere, you could risk losing some of the special benefits it comes with – like a guaranteed income throughout retirement. For this reason, you’ll legally have to get advice from an independent financial advisor if you’re considering transferring a defined benefit pension. You can find the right one for you using Unbiased, which specialises in matching you with expert advisors.

Not sure what kind of pension you have? Then the chances are you have a defined contribution pension (you know, the piggybanks ones!) and you won’t have to worry. After all, nearly all pensions work this way and it’s generally only a few older ones that don’t.

Ultimately, if you choose to leave your pension where it is, you don’t have to do a thing – simply sit back, relax and let your pension provider (the company looking after your pension) know when you’re ready to start taking an income from it. Just remember, you have to be at least 55 to start taking money from your pension, unless you want to risk paying VERY hefty fees and taxes – you can learn more about that in our article on whether you can withdraw your pension before 55.

Pros

• Easy. You don’t need to do anything at all.
• Growth. Your money should keep growing – although normally not as quickly as it would if you moved it to a personal pension.
• Good for defined benefit pensions. You’ll keep your special benefits if you have a defined benefit pension.

Cons

• Performance. You’ll often get better investment performance with a different pension provider.
• Expensive fees. Fees are often more expensive than they would be with a personal pension (just like a mobile phone contract, loyalty doesn’t pay when it comes to pensions!)
• Easy to forget. It can be easy to forget about or lose your pension, especially if you have lots from lots of previous employers.

How to transfer your old pension

Decided that transferring your old pension is the way forward? Whether you decide to transfer it to your new employer’s workplace pension scheme or to a personal pension, it’s super easy! Here’s how to do it.

1. Find your old pension details 

First things first, you’ll need to dig out the details of your old pension. Normally, all you’ll need is the name of your pension provider. However, it can be handy if you have more details too, like the value of your pension. And it’s also good to check whether you’ll be charged any fees for leaving.

If you’re not sure where your old pension is, don’t worry. You can use the find a pension tool on GOV.UK to track down any old pensions that you may have forgotten about. 

If you already know which pension provider you want to transfer it to, they should also be able to help you to track your old pension down. Some will have their own tool where you can just put in the name of your old employer to find out which pension provider is looking after your pension. Easy!

2. Decide where to transfer it to

Next, you’ll need to decide where you want to transfer your old pension to. 

We’d recommend transferring it to a personal pension – either one you’ve already set up, or to a new one altogether – as this way, you can choose a provider that has low fees and that can grow your money quicker. Starting a personal pension is really easy. In fact, it can be done in minutes if you choose the right pension provider!

Not sure who to pick? If you like the idea of a handy mobile app that can help you track your money, you’ll love PensionBee. Or, if you want a modern provider that will give you bespoke financial advice, Moneyfarm is for you. They both have pretty low fees and great customer service too!

3. Sit back and let your pension providers sort it out

Decided which pension provider you want to transfer your old pension to? Then all that’s left is to tell them you want to do a pension transfer. 

Normally, you’ll just need to give them the name of your old pension provider. Then, you can sit back and relax – your new pension provider will get in touch with your old one to arrange the whole transfer for you. 

Your old pension provider might ask you to confirm the transfer. But other than that, you simply have to wait for those savings to appear in your new pension pot, which normally takes around 2 to 4 weeks. So, enjoy working your way through Netflix’s whole back catalogue while your pension providers do the heavy lifting!

How to cash in a pension from an old employer

Once you reach the grand (not-so-old) age of 55, you’ll be able to start withdrawing cash from your pension. Kerching!

This applies to pensions from old employers and pensions from current employers. It also applies to personal pensions – they should all work pretty much the same! So, how can you do it?

Well, every pension provider will have its own rules and ways of doing things. But you can normally take the first 25% of your pension pot all at once, as a tax-free lump sum. Nice! 

With the remaining 75%, you can…

1. Take all of it (or some of it) as cash. This could be little by little or in one go.

2. Buy an annuity. This is a kind of insurance product where you pay a one-off sum to get a fixed, regular income – either for the rest of your life or for a fixed period of time.

3. Pay yourself a regular income. Known as income drawdown, pension drawdown or flexi-access drawdown, this normally means moving your savings from your normal pension pot into a separate but similar pension fund where it can keep growing while paying you a regular (but flexible!) income.

To learn more about these options, check out our article on how you can take your pension tax-free lump sum.

When you start taking an income from your pension, just remember to check whether you have any old pensions you may have forgotten about. Who knows, if you’ve had many employers, you may just have a few extra pension pots lying around that you didn’t know about (crack out the champagne!). Head to GOV.UK to get started – it’s just 10 minutes of your life but potentially thousands of pounds you could have stashed away!

Let’s recap

Even though your old employer set up your workplace pension for you, that money will still be yours when you leave your job! So, it’s up to you what you want to do with it.

If you’re over the age of 55 (or potentially 57 from 2028), you can choose to cash it in to get those juicy savings (and tax-free cash) straight into your pocket. But if you’re younger, you’ll need to wait a bit – so, we’d recommend transferring it over to a personal pension where your savings can grow quicker – check out our guide to personal pensions to get started.

Whatever you choose, just don’t forget where you’ve squirrelled away your savings!! You might laugh but we promise, it’s a thing – according to The Association of British Insurers, there are around 1.6 million lost pension pots in the UK that together are worth around £19.4 billion. Gulp. 

So, move on from your old employer and job hop all you want – just keep a track of your old pensions (or where you’ve transferred them to!) and you’ll be perfectly placed to enjoy retirement to the full (cruises around the Caribbean, anyone?!).