15 Feb 2023
Lumin Wealth’s Managing Director, Martin Cotter, explains why a career move is a good time to reassess retirement plans.
One of the less commonly talked about opportunities to refine and optimise retirement plans – and more broadly your finances as a whole – arises from a career change, whether that’s in the form of a substantial promotion at your current place of work, or a new role elsewhere.
A plan for your pension
A pension is often the foundation on which a happy retirement is built, so starting a new role is a natural time to review how much you’re contributing to this important tax wrapper.
Many people receive a pay rise when moving jobs, so you could consider increasing pension (and ISA) contributions, if you have unused annual allowances available. Most taxpayers can pay up to £40,000 per year into their pension, and benefit from tax relief on contributions.
This ‘annual allowance’ is reduced (tapered) for those earning over £240,000.
If you earn over £100,000 your personal allowance of £12,570 is also reduced. Those earning between £100,000 and £125,140 are effectively paying 60% income tax on that portion, but pension contributions can see you regain some (or all) of your personal allowance and make substantial tax savings.
All too often at Lumin we come across cases where high earners are not taking full advantage of available tax breaks, so a job-change can be a good prompt for people to reassess – and hopefully optimise – their pension contributions.
‘De-cluttering’ old pension plans
It could also be a good time to assess pension plans from previous workplaces. A recent report by the Pension Policy Institute estimates that almost £27 billion of consumer pension assets are ‘lost’, with nearly three million pots not matched to their owners.
This isn’t a surprising statistic if we consider that people work for 11 employers on average during their career. Tracking down older workplace pension plans you may have ‘lost’ (these are often smaller pots) is a good starting point.
People usually join a new pension scheme with each job move, so it’s little wonder things can get rather muddled if you have a number of pension plans.
Modern workplace pension funds tend to be low-cost, but very basic, with limited investment choice. Some ‘target date’ workplace funds will also automatically ‘de-risk’ in the years leading up to a predetermined retirement age. But decisions made decades ago may not reflect changing lifestyle needs or circumstances. For example, you may decide you wish to retire later than originally planned and therefore maintain a higher allocation towards growth assets, such as stocks.
In many cases combining various old workplace pension plans into one ‘mothership’ self-invested personal pension (SIPP) can lead to reduced costs (one fee, compared to several plans with differing fees), less admin, and allow you to set one master investment strategy that better reflects your financial goals.
We’d be delighted to discuss your financial planning needs over a coffee. Do feel free to email me on martin.cotter@luminwealth.co.uk, or call the office on 01727 893 333. You can also find out more at luminwealth.co.uk.
