Life changes happen to us all. Relationships, families, careers and homes are all significant investments, financial and otherwise. Changing any of these circumstances can considerably impact other areas of your life. And your pension is one of those.
You may have already considered that you must update your contact details when you move house or change your beneficiary details if a relationship has ended. But have you considered the impact of your circumstances on your pension?
Let’s look at common life changes that may impact your pension and how you should prepare for them.
Marriage and Divorce
Going through a marriage or a divorce is an emotional time. But marriage is a legal contract, so you must understand the implications of this.
Anyone contemplating marriage should understand their partner’s financial standing, including their pension situation. Under a provision within the Family Law (Scotland) Act 1985, pensions are classed as “matrimonial property”.
This provision was granted to protect spouses who have taken career breaks to raise children should there ever be a separation or divorce.
What does this mean in reality for you? Whether you are going through a divorce or looking at marrying your partner, your pension will be considered a legal property that may be shared with your new or ex-spouse.
If you are getting married, you and your partner will still have separate pension accounts. Any pension you saved before marriage is unlikely to be included as matrimonial property. But any pension contributions after marriage will be liable to be shared upon divorce.
If you are in the midst of a divorce, you must be fully aware of your rights concerning pension sharing and ensure you discuss this with your solicitor. Feel free to contact our family law team if you require legal assistance.
Having children
Planning a family is an exciting life change for any parent-to-be. But with it comes the stresses of financial planning around supporting children and managing parental leave.
You may prioritise managing your income, but remember that parental leave can impact your pension - whether paternal, maternal or adoption.
If you take paid parental leave, your usual pension contributions, including from your employer, will still apply.
However, your pay level determines how much is contributed to your pension. Therefore, if you are changing to statutory maternity pay, your pension contributions may be lower than when you are on a full income.
If you take unpaid parental leave, your pension payments will cease. Your employer will pause all contributions, to be resumed upon your return to work.
Changing job
Naturally, changing jobs will have an immediate impact on your pension. Your pension scheme with your former employer will cease, and you must decide your next steps.
Many people start a new pension scheme with their new employer's provider. This is the simplest option as your new employer will arrange the details.
However, if you have changed employers a few times, you may end up with multiple pension accounts and different providers, which can be challenging to keep track of.
A second option is to continue with your existing pension provider. You will need to contact both your new employer and your pension provider so they can update their details.
This option can make it easier to track how much you have in your pension and where your money is. However, you may miss out on company pension scheme benefits, so ensure you compare the fine print.
When you open a pension account with your new employer, you may have the option to carry your old pension into the new account. Your new employer or pension provider can advise whether this is possible.
Self-employment
Becoming self-employed can open doors of flexibility, uncapped earnings and full control over your work. But it also comes with the responsibilities of running your own company.
There are two main impacts on your pension when you step into self-employment. First and foremost, you will no longer be enrolled in a workplace pension scheme. You must take full responsibility for contributing to your retirement fund.
Second, your pension will no longer benefit from employer pension contributions. For most people, this will equate to less overall input into their retirement fund.
To tackle this, you need to build a long-term pension plan. Calculate how much you need to contribute towards your pension to leave yourself enough for retirement. Then, budget this into your business financial plan.
You may be able to continue using your previous pension account with your last employer or choose a pension option specific to self-employed individuals.
Moving abroad
Moving overseas can be exciting for you and your family, and you will undoubtedly wonder what happens to your pension.
If you are taking a sabbatical and staying with your current employer, you may have the option to pause your pension until your return.
Otherwise, when you move overseas and commence work in your new country of residence, your pension contributions at home will cease. Any pension funds you have saved up to the point of leaving will still be yours for receiving on retirement.
When you take on work in your new country of residence, you should investigate pension options and laws for that country. If you are planning long-term travel or leave from work, you must consider how the lack of contribution to your pension may impact your future retirement plans.
Need a pension checkup?
Whether you want to set up a new pension plan, need help consolidating your pension pots or simply want advice about how your circumstances will affect your pension, please contact us today for confidential, independent advice.
Based on tax legislation at the time of publication. Please be aware that there will have been changes since this was published. Speak to your adviser for the most up to date information.
