What should you do with your pension monies when you resign?

When our parents grew up, they left school, if they were lucky enough they got to study and then they got a job. And they pretty much stayed in that job for the rest of their life. That’s just how it was 40 years ago. Things have changed and most people stay in a job for a couple of years and then potentially look to move on. But what should you do with your pension fund monies when you leave your employer?

Let’s have a look at what the options are:-
  • Take the cash, or a portion thereof, and pay the tax on whatever you take
  • Transfer the fund, tax-free, into your new pension fund at your new job
  • Transfer the fund, tax-free, into a preservation fund, or
  • Transfer the fund, tax free, into a retirement annuity
Far too many of us opt for the first option. Given the choice, we look at the amount of money in our pension fund and think we could maybe do with a new car, or an overseas holiday. The problem with that type of mentality is that you forget that it’s taken you several years to accumulate those pension fund monies. Let’s assume that your working career lasts 24 years. Let’s assume that you have 6 jobs in that period of four years each. Let’s make one more assumption and say that out of those 6 jobs, you have cashed in your pension 3 times (50% of the time).

That effectively means that you have short changed yourself out of 50% of your pension fund monies.

What is going to happen the day you can’t work anymore? Perhaps an illness puts play to your working career. Maybe, you are replaced with a younger, cheaper option, at work. Too be perfectly honest, the older we get, the more likely we are to become redundant in our jobs.

All you have for your “Golden Years” is what you have been able to accumulate during your working life. And part of that capital accumulation lies in your pension fund monies.

The smart play is to NOT cash in your pension fund monies, when you move from one employer to the next. Make use of the other 3 options available to you:
  • Transfer your fund into your new employer’s pension fund
  • Transfer your fund into a preservation fund
  • Transfer the fund into a retirement annuity
The temptation will always be there to take the cash and run. But don’t act on it - it might result in you needing to move in with your child and their family, in 20 years from now, and who really wants to be that person?

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The iHound