So, jobs aren't for life. But can I take my pension with me?

What should you do if you've built up funds in an occupational pension scheme but then leave the company? Rachel Fixsen collects independent advice on whether to place the money in a new scheme... or to leave the benefits exactly where they are
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Indy Lifestyle Online
If pensions were cars, then occupational schemes would surely be Aston Martins. The retirement benefits and insurance offered are hard to beat, though not everyone is lucky enough to have one. Your boss often contributes to the occupational scheme and the benefits offered would usually be out of reach in the private pensions market.

But jobs are now rarely for life, and most of us will switch employer at least once before retirement. When this happens, just what should you do with the pension you have accrued?

Don't panic, says Ian Williams, pensions specialist at independent Marshall Williams & Co in Horsham. Even if you are fired or end on really bad terms with your old boss, your accrued pension is in no danger.

"Some people don't trust their old employer, and don't seem to appreciate that the benefits are held in trust. Provided the scheme is insured, there's no need to worry," Mr Williams says.

If your new job comes with the opportunity to join a good workplace pension scheme, don't hesitate to join it, he says. But sooner or later, you will be faced with a decision on what to do with your old pension. Should you transfer it to the new scheme or leave it where it is, taking deferred benefits at retirement in addition to those from any subsequent scheme?

"The only real way to know this is to seek some advice," says Philip Telford of the Consumers' Association. According to CA research, you have a better chance of getting good advice from an independent financial adviser than one tied to a particular financial services provider, he says. And advice given on a fee basis, rather than commission, is likely to be the most unbiased and objective, he says.

Many financial advisers got their fingers badly burned between 1988 and 1994 when they advised clients to leave occupational pension schemes, or not to join in the first place, and sign up for personal plans instead. The commission paid to advisers by the personal pension providers often proved hard to resist. Thousands of people lost out and the slow process of compensating them is now under way.

Regulations have since been tightened. From March next year, only financial advisers with a special qualification will be allowed to advise on pensions transfers.

There are two types of occupational pension scheme. Final salary is the most common. Your pension benefits are based on a proportion of your earnings at or near retirement, and also depends how long you have been in the scheme.

The other main type is money purchase, where contributions from you and your employer are invested and, when you retire, the fund that has built up is used to provide pension benefits. How much you end up with depends on the performance of the investments.

A few schemes are hybrids, having elements of both types.

"If it's a money purchase scheme, there's no real problem," says Andrew Smith, pensions consultant at IFAs Towry Law in Windsor. "The main thing to look out for is whether there is a penalty for transferring," he says. If there's a difference between the current value and the transfer value, then there is a penalty. However, if you are transferring to a personal pension, it is also important to compare the tax-free lump sum at retirement and death benefits, he says, plus the initial charge and the annual management fee of the private pension scheme.

There is not usually much point in transferring benefits from one final salary scheme to another of the same type, unless it's purely for convenience, says Mr Smith. If you leave the deferred pension where it is, it will increase by the rate of inflation, up to a maximum of 5 per cent a year, until you retire.

There is one exception, where you have left money in a final salary scheme, amounting to several year's service and you are now in a job where your likely final earnings will be much higher. If so, it makes sense to place the years from your old scheme, where they would be frozen at your old, lower salary, into the new pension scheme.

But you might want to transfer from a final salary scheme to a money purchase scheme if you thought that by investing the accrued pension you could improve benefits at retirement.

Before deciding whether to transfer from a final salary scheme to a money purchase plan, an adviser will do a "transfer analysis". All the benefits your final salary pension scheme offers you have a capital value, including, a spouse's pension, life assurance, a tax-free lump sum at retirement and price indexation.

A transfer analysis will determine what level of investment growth per year you would need in order to be in exactly the same position at retirement as if you had stayed in the original job. This usually comes out at around 10 or 11 per cent, and whether or not you then opt to transfer depends on your attitude to risk.

Transfer values from final salary schemes fluctuate according to the interest rate cycle and this is another thing to consider before opting to transfer. When long-term interest rates are high, then transfer values are low, and vice versa. At the moment, transfer values are high. But in the late Eighties and early Nineties, they were low. "Anyone who took a transfer then should really review that," says Mr Williams. If they were badly advised to transfer, then compensation may be payable.

If you move to a new job where there is no workplace pension in place, or if you become self-employed, you will probably have to take out a personal pension plan. "Things to consider are the charges and commissions involved," says Des Hamilton, technical director at the Occupational Pensions Advisory Service (OPAS). Again, you may need specialist advice on this.

Occupational Pensions Advisory Service, 0171-233 8080; Marshall Williams & Co, 01403 210534; Consumers' Association, 0171-830 6000; Towry Law, 01753 868244.