There may be trouble ahead...

CHANGING JOBS ...but there are ways to beat the Third Horseman of the Financial Apocalypse. By Brian Tora
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While having your livelihood taken can be a shock emotionally as well as financially, changing jobs voluntarily can be just as much of a financial upheaval. It is well worth considering the consequences in advance.

A decision on whether or not to move to a different firm used to be just a case of balancing the salary offered and your holiday entitlement. These days most companies offer a wide range of benefits that can considerably influence the value of a prospective new employer's package.

Company cars have been a common perk, but successive Budget changes have rendered these less attractive. Mortgage subsidies and season ticket loans are not uncommon, although with lower rates they do not now carry the weight they once did. However, occupational pension schemes certainly do.

Other than for high earners, the days have gone when transferring from one pension scheme to another put the job mover at a severe disadvantage. Even so, it is as well to calculate how many years of service a transfer can buy you in your new employer's scheme.

The growth of schemes where benefits depend on the final value of the fund means that you have to compare carefully what you may ultimately receive.

If you decide not to transfer your pension when changing jobs you must still be careful. Often a paid-up pension in a scheme based on final salary can be quite valuable. But if you die before your retirement date you may find the benfits of your widow or widower are restricted. In those circumstances it may be better to move the transfer value into the new employer's scheme or into a personal pension.

Remember, too, that the perks in a new job are not always pensionable. Imagine leaving a company where your salary is quite good, the pension provision adequate, but there are no perks. Your new employer offers a car, longer holidays, mortgage subsidy, private health insurance - all the things you feel you deserve - but with a lower salary.

This means your employer's pension contributions will be lower, leaving you to make up any difference to which you are entitled.

For high earners, the position is particularly fraught. The Government caps pensions for senior employees by not allowing tax relief on contributions for people over a certain earnings level. Presently this is set at pounds 78,600, but if you were fortunate enough to be employed before the cap was introduced in 1989, the restriction does not apply.

If you leave pensioned employment you have had since before 1989 for another highly paid job you will find that the new employer cannot make tax- efficient provision for you above the pounds 78,600 level, so your pension can be no more than pounds 52,400 (two thirds of final salary).

Pensions are also important if you lose your job. I was once asked to advise someone from a City firm who had been made redundant at the age of 54 after more than 30 years of service. As a high earner, he got a large redundancy cheque, but it was taxable apart from the first pounds 30,000.

What should he do to protect his position? But for redundancy he could have achieved full pensionable service. But now he had to contend with a paid-up pension that would not deliver anything like the income he might have expected in 11 years' time.

His pension was non-contributory and among the benefits were death in service cover or four times his annual salary. These benefits were lost and, were he to drop dead, his wife would be considerably less well protected.

Part of his redundancy money was used to reduce his mortgage to pounds 30,000. True, the tax relief is not so great these days. But the modest benefit it brought justified retaining a relatively small mortgage (his house was worth over pounds 300,000) at a level that a new salary might justify. Paying it off completely would have reduced his flexibility.

His former employers also agreed to make part of the redundancy payment in the form of a contribution to his pension scheme, thus saving tax, which was then transferred into a Self-investment Pension Plan. With the new rules that now govern personal pensions, it seemed sensible to give him as much flexibility as possible so that he could start drawing an income from his pension fund early if needed.

The rest of the redundancy, after the tax had been paid, was added to a modest investment portfolio to increase this source of income. This more than covered the cost of the additional life insurance he took out to protect his wife in case he were to die - not as large a sum as his original death in service cover, as his self-invested pension fund was available to her on his death.

What is more, he found a job locally. The salary was less but his quality of life improved immeasurably. His outgoings reduced with no season ticket, lower mortgage outgoings and less to spend on clothes.

I saw him a year after the change. He was half a stone lighter, looking tanned and fit. The circumstances had suited him so well that he said had he known what a difference it would make, he might have made the move voluntarily.

But then he would not have had the redundancy money.

The author is chairman of the investment strategy committee at the stockbrokers Greig Middleton.


Check any benefits your new employer is offering - remember they are unlikely to be pensionable. If the new job comes with a range of attractive perks, but with a lower salary it means your employer's pension contributions will be lower, leaving you to make up any difference to which you are entitled.

Remember that occupational pension schemes can vary considerably in type, benefit and contribution levels.

Just take the redundancy money and run. Remember, everything above pounds 30,000 is taxable, so you could lose 40 per cent of the rest of a larger payout.

Forget that some benefits, like death in service payments, are not so immediately apparent. But they can have a devastating effect if they are not replaced.

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