What happens to your pension if you’re made redundant?

Step one: check what type of pension you have

Before you can decide what to do with your pension, you need to know what type it is. The two main types of workplace pension are:

• defined contribution, which may take the form of an occupational scheme, group stakeholder scheme or group personal pension; and
• defined benefit, which is also referred to as a final salary pension.

If you’re not clear what kind of pension you have, check with your employer.

Step two: consider your options

Different courses of action are open to you depending on which type of workplace pension you have. Here are the main options for each type of pension.

Defined contribution: occupational scheme (defined contribution) 

This type of pension is linked to your job so when you are made redundant you have to stop paying into it. You can either leave the fund as it is to keep accruing interest until you retire, or you can transfer the fund to a new pension scheme. This can either be a personal pension, such as a stakeholder scheme or a SIPP, or another workplace pension when you start working again.

Defined contribution: group stakeholder scheme/group personal pension

Although they are common workplace pensions, group stakeholder schemes and group personal pensions are linked to the person, not the job. If you have either of these types of pension you can keep paying into them even after you leave your job. You should contact your pension provider directly to arrange your contribution. You can also take this pension with you to your new workplace.

Defined benefit

Like an occupational scheme, you stop paying into a defined benefit pension when you leave the job. You can choose to leave your savings in the scheme, in which case you will receive a pension from the fund when you retire. Make sure the pension scheme has up to date contact details for you.

If you work in the public sector you may be able to transfer your defined benefits. Otherwise, this can be very difficult. Your other option is to ask the pension provider to transfer the cash equivalent of your benefits into a personal pension such as a stakeholder scheme or a SIPP. This should only be done with financial advice as the benefits you will be giving up can be hard to replace.

Step three: get advice

If you’re not confident about deciding on the best course of action for yourself, it might be a good idea to seek advice from an independent financial advisor. Similarly, if you’re not getting clear information about your pension from your employer, a financial advisor might be able to help.

Whatever you decide to do, make sure you’re fully informed. Read the fine print and be aware of any charges associated with transferring your pension or changing or stopping payments.

Risk warning: As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Pension rules apply and tax rules may change in future. If you need help with pensions, seek independent financial advice.