What happens to my pension when I leave a company?

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Fact Checked.
Updated on
November 26, 2022

In a nutshell

It’s good news. Your pension becomes all yours! You can move it to a new pension provider that’s easier to manage, has lower fees, and a good track record of growing pensions – which is highly recommended. You can of course leave it where it is, just don't forget get about it – lots of people do!

Nutty

Got a new job? Congratulations! Or maybe you’re just leaving your company for other reasons. Whatever the reason, there’s great news for your pension – it becomes yours to do as you wish. Here’s what happens to your pension when you leave a company.

What happens to your pension

When you leave your job, your workplace pension (your pension your employer set up), is no longer linked to your employer, it becomes fully yours. And this is a great thing. It means that you have full control over where and how your pension is managed.

What happens to my pension when I leave a company?

Why is this good? Because you can now decide which pension company (provider) to use! You can move your pension to a pension provider with lower fees, great service and a great track record for growing pensions over time.

It’s very likely that the workplace pension you have with your employer isn’t the best (such as the National Employment Saving Trust or NEST Pensions) – not many of them are!

Your employer just wants to set one up, as they have to by law. This means they probably haven't searched for the best deal, and they probably have high fees, with a bad track record for investing your money.

Often, there’s not much communication from the provider, and not much transparency over your money and where it’s invested. You probably don’t even know how much you have in your pension do you? Don’t worry, it’s not your fault – it’s your current pension providers!

So, now the pension is all yours, it effectively moves from being a ‘workplace pension scheme’, which is one set up through your employer, to your very own personal pension scheme – one that you manage and have control over. Let’s run through personal pensions a bit more.

Workplace pension vs personal pension

If you’ve heard enough already, and are keen to move to a better pension provider, here’s where to find the best personal pensions. We love PensionBee¹ – it’s super easy to use, has low fees and a great track record – plus they’ll handle the whole process to transfer your pension over, you don’t need to do a thing. Here’s our PensionBee review to learn more.

Find the best pension for you

We’ve reviewed the best personal pensions to help you find the best one.

Best personal pensionsBest personal pensions

Defined contribution pensions

By the way, all the above is technically called a defined contribution pension scheme – which are the standard pensions in the UK, where both you and your employer contribute each month from your pay. (Most people have these.)

Defined contribution pension

Defined benefit pensions

The alternative is a defined benefit pension scheme, and these are more common with government jobs, such as the NHS. With these, you’ll be given a set amount each year when you retire, which depends on things like your salary and how long you’ve worked there. 

It may not make financial sense to transfer this type of pension to a new provider when you leave your job, and if the value is more than £30,000, you must (by law) speak to a financial advisor before transferring your pension.

Personal pensions

When you leave your job, your pension essentially now becomes a personal pension. This means it’s all in your name, and not linked to your employer. You decide what happens to it – where it’s managed, and where the money is invested. 

It’s a type of private pension, which simply means it’s private to you, rather than the State Pension, which is the pension you could get from the government when you reach retirement age (currently 66).

Types of pensions

With a personal pension, you can access the cash from age 55 (57 from 2028). Although it’s a good idea to keep it invested for as long as possible so it grows more over time!

And after you reach 55, you can take 25% as a tax free lump sum if you like. Or, if you want to withdraw cash from it regularly, the first 25% of each withdrawal will be tax free.

Accessing your tax-free money from your pension

Often people will use their pension funds to buy an annuity when they retire. This provides a guaranteed income every month for the rest of your life, or a set period of time (e.g. 20 years). But you don't have to, you could leave the money invested to grow more and simply take a regular income (kind of like what you get with a pay cheque).

Benefits of personal pensions

Personal pensions have got some great benefits, perfect for building up your retirement savings over time.

Government bonus

You might be aware that you don't pay tax on your workplace pension. Money is taken out and put into your pension pot before the tax is applied. This means all the cash going into your pension is completely tax-free!

Workplace pension tax relief

You still get this tax-free benefit with a personal pension, however the money doesn’t come out of your salary, you can only add to your pension after you’ve been paid, and so have already paid tax on your income.

To correct this, the government will add the tax you’ve paid on your income back into your pension in the form of a bonus. And it happens all automatically. So, you’ll get a massive 25% bonus on everything you pay into a personal pension. Pretty great right?

Personal pension tax relief

And if you’re a higher rate taxpayer (earning over £50,270), or an additional rate taxpayer (earning over £150,000), you can claim tax back at those tax rates too (40% and 45%).

Getting this bonus, and saving tax-free has a massive impact to help your savings grow much faster over time. You literally can’t beat it, making pensions one of the best ways to save for the long-term.

No Inheritance Tax

It gets even better, with all pensions, they won’t count towards your ‘estate’ when you pass away. That’s all your assets (such as property) and money you’ve saved added together. And if it’s worth more than £325,000, anything above that will be taxed at 40%.

What's inheritance tax?

However, pensions don’t count. They’ll go straight to your beneficiary (the person you've left your pension too, often your spouse, civil partner or kids). If you pass away before 75, they won’t have to pay Income Tax on it either, although they might if you pass away over 75.

Consolidate your pensions

With personal pensions, you can also merge them all into one single pension if you want to, called consolidating your pension. This is a great idea to do, especially if you have lots of old company pensions lying around.

Pension consolidation

First of all, you won’t have to remember where they are later when you actually need them – there’s around 1.6 million pension pots forgotten about in the UK, worth a whopping £19.4 billion, according to the Association of British Insurers. It’s also much easier for your family, or next of kin to find your pension(s) if you pass away. 

Second, you can save a lot of money over the years in fees – the more money you have within a single pension, can often mean a lower fee (%) on your pension (pension providers usually charge an annual percentage of the total of your pension each year). And this saving could really add up to large amounts of money.

And with your pension all in one place, it’s much easier to check on it, track its progress, and understand if you’re saving enough (or not enough) to give you the retirement you want.

Companies like PensionBee¹ can consolidate your pension on your behalf for free. It's a no brainer in our opinion here at Nuts About Money.

Here’s where to learn more about consolidating your pension.

What to do with your old company pension

So hopefully now you know a bit more about personal pensions and all the benefits. Now you have a few options to choose what to do with your old company pension:

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

1. Transfer it to a personal pension

Our recommended option is to transfer your old company pension to a personal pension with a top pension provider. This way you’ll have full control over where it is, and you can pick a provider that you like, so one with low fees, that’s easy to use and has a good pension fund with a great track record of growing pensions.

Transfer old pensions to a personal pension

The good news here is that you don’t need to do anything! If you pick a good new provider, they’ll take care of the whole process. All you need is the name of the old pension scheme provider – your old employer will you let you know who it’s with if you don’t have any paperwork.

How to transfer your pension

If you need help finding a new pension provider, here’s the best personal pensions. We like PensionBee¹ – they specialise in pensions and make them super easy. There’s also Moneyfarm¹ who provide expert advice too, and can handle all of your savings, not just pensions.

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Best overall

PensionBee

PensionBee are leading the way with modernising pensions. The investment options are great for many pension savers, it’s an awesome app and website, which are both easy to use, and have tools and charts to show you how your money is growing – and importantly, how to hit your retirement goals.

It's easy to set up and get going, you can start a brand new pension, or simply transfer your existing pensions across.

You’ll pay one simple fee that decreases the more you save.

Fees: low (0.5% to 0.75%) for their core plans

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PensionBee rated 5 stars

Our friends at PensionBee will contribute £50 to your pension when you open a PensionBee account.

Capital at risk.

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Moneyfarm

Moneyfarm is like a financial advisor on your phone (or website), their experts will work with you to determine the best investment strategy. It’s low cost, with an excellent investment track record and great customer service.

You’ll pay one simple fee that decreases the more you save.

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Moneyfarm rated 5 stars

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2. Transfer it to your new workplace pension

If you’re moving to a new job, and they sign you up to their pension scheme (they probably will, as it’s part of the legal requirement called ‘Auto-Enrolment’), then you could move your old company pension pot over to your new one (if your pension provider allows this).

This way, you won’t have to worry about your old one ever again. However, we don’t recommend doing this. You won’t be able to move it until you leave your new job, and you won’t have a choice of all the good pension providers. It’s likely your employer won’t be using one of the best providers, so you could be paying high fees, and could have a low rate of growth (how much your pension increases in value). Plus, there might not be any transparency over your money and where it’s invested.

3. Keep it where it is

Finally, you could also choose to do nothing, and keep your pension where it is (called a Preserved pension). It should continue to grow over time, as the current provider will manage it. However, you may be paying more than you need to in fees, you probably wont know how much money you have, and it might not be the best investment performance.

Preserved pension

If you want to keep it where it is, it’s worth checking the fees and the past performance – you might be missing out by quite a lot in the future by not transferring it to a better provider. It’s kind of like staying put with the same internet company, loyalty doesn't pay! 

And make sure you make a note of where the pension is, so you don’t forget about it in future!

Nuts About Money tip: tell your family where all your pensions are too, they might need to access them if you sadly pass away.

Can I cash in my pension when I leave a company?

You can’t cash in your pension when you leave your company, it will need to remain within a pension – so your best option is to transfer it to a new, better provider.

Well, you can withdraw it before you’re 55, but it’s not worth the tax you’ll have to pay.

Can I withdraw my pension before 55?

However, having said that, if you are over 55, you could actually start withdrawing cash from your pension(s) if you wanted to. Although it’s often better to keep them growing until it’s time to retire – you'll hopefully have more cash the longer you leave it in your pension!

And if you start withdrawing cash, you’ll also reduce the amount you can save each year into your pension (for instance you might be paying into a pension with your new job). This reduces from £40,000 or your total income (e.g. salary), whichever is lower, to £4,000. So it’s quite a big drop!

This is called the Money Purchase Annual Allowance (MPAA).

Let’s recap

So there we have it. Leaving your job is good news for your pension. When you leave your company, your pension becomes all yours and you can do what you like with it (well, except withdraw it!).

Your best option is to transfer it to a pension provider that has low fees, a good track record of investment performance, easy to use and the ability to track your pension whenever you like.

You could also transfer over all of your old pensions (if you have them), so your pension is in one easy to manage place, plus you could also benefit from a lower fee (%).

If you’re not sure where to get started, we’ve done the hard work for you and reviewed all the best personal pensions. Our favourites are PensionBee¹, who make pensions super simple, and Moneyfarm¹, who can provide expert advice and manage all your savings (not just your pension).

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Find the best pension for you

We’ve reviewed the best personal pensions to help you find the best one.

Best personal pensionsBest personal pensions

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This article has been fact checked

This article was written by the team at Nuts About Money, and fact-checked by 2 independent reviewers. You’re in safe hands.

Find the best pension for you

We’ve reviewed the best personal pensions to help you find the best one.

Best personal pensionsBest personal pensions

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