Your pension options if you’re made redundant
Facing redundancy is stressful enough without worrying about what will happen to your workplace pension. So it’ll be a relief to know that help is at hand, and you’ve got options open to you. Here are some simple steps you can take to start sorting your pension out in case of redundancy.
What type of workplace pension do you have?
Different pensions work in different ways. So, before you can decide what to do with your pension when you’ve been made redundant, you’ll need to be clear about which type you have.
There are two main types of workplace pensions.
Defined benefit (also known as salary-related or final salary schemes) – these are always occupational schemes, which means they are specific to your work for a particular employer.
Defined contribution (also known as money purchase schemes) – these might take the form of an occupational scheme, a group personal pension or a group stakeholder scheme.
If you’re unsure, start off by asking your employer what type of pension you’ve got.
Check out your pension options
Once you know what kind of pension you’ve got, you need to decide whether to leave it where it is or transfer it somewhere else. Here’s a quick guide to your options.
Defined benefit pensions
If you are made redundant, you will have to stop paying into it and do one of the following:
- Leave your pension in the scheme and when you retire you will receive a pension from that scheme.
- Transfer your pension into a new employer’s scheme, if it will allow you to – unless your new job is in the public sector, it is unlikely to offer a similar scheme.
- Transfer your pension contributions into your own personal pension.
- If you are old enough, you might be able to take early retirement.
In most cases, it is usually better to leave your pension in the scheme.
You should only transfer out of the scheme with good reason.
For example if you are concerned that the scheme is not adequately financed and your old employer might go out of business.
If your ex-employer goes out of business (or you’re worried they might), and you’ve left your pension in their scheme, check out the scheme members section on the Pension Protection Fund websiteopens in new window to see what compensation you might get.
Defined contribution pensions
Group personal pensions and group stakeholder schemes are linked to you, not your job. Some people choose to keep paying into them after they’ve been made redundant. If you want to do this contact your pension provider directly.
If your employer has enrolled you in NEST (the National Employment Savings Trust), this is also linked to you not the job, so you can carry on paying into it if you want to.
If you are made redundant and this is an occupational scheme, you have to stop paying into it and have the option to either:
- Leave your pension where it is to carry on growing until you retire.
- Transfer it to another defined contribution scheme – either a personal pension or a new employer’s scheme when you start working again.
You might be allowed to transfer your fund to a salary-related scheme with a new employer, but you’ll need to check if they’re okay with that.
You should also find out how much the transfer will cost to see if it’s worth your while.
Speak to an independent financial adviser
Pensions are complicated. You might want to speak to an independent financial adviser (IFA) who can talk with you about your options.
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