Could Redundancy Affect Your Retirement Plans?

Redundancy can create uncertainty at any stage of a career.

Alongside immediate concerns about income, household costs and finding another role, you may also wonder what happens to the pension you have built with your employer.

The reassuring news is that redundancy does not normally mean losing your workplace pension. The money or benefits already built up remain yours.

However, contributions may stop when your employment ends. Depending on your age, how long you remain out of work and when you planned to retire, that break could affect your longer-term plans.

Understanding what happens next can help you avoid making rushed decisions during an already difficult time.

What happens after redundancy will depend partly on the type of workplace pension you have.

If you have a defined contribution pension, the money already saved will usually remain invested with your existing provider. Its value can continue to rise or fall according to investment performance and the charges applied.

Your former employer will normally stop contributing after you leave. Your own contributions through payroll will stop too.

If you have a defined benefit pension, sometimes called a final salary or career average pension, the benefits you have earned will usually remain within the scheme. The income you eventually receive will normally be based on factors such as your salary and length of membership.

Your pension provider or scheme administrator can confirm exactly what applies to you.

It is also sensible to check your final payslip and pension statement to ensure all expected employee and employer contributions have been paid.

Redundancy does not mean you must make an immediate decision about where your pension is held.

Depending on the scheme, your options may include:

• Leaving the pension with its existing provider

• Transferring it to a future employer’s scheme

• Moving it into a personal pension

• Combining it with another existing pension

• Continuing to make personal contributions
  
  

Leaving the pension where it is may be perfectly appropriate. Your provider will normally continue managing the money until you decide to access or transfer it.

Transferring could make your pensions easier to manage, but convenience should not be the only consideration. You could lose valuable guarantees, protected pension ages or other benefits. Charges and investment options may also differ between schemes.

You do not have to decide while dealing with the immediate effects of redundancy. Taking time to understand the pension first can help prevent a permanent decision based on short-term pressure.

A period without workplace contributions can affect the amount available in retirement.

You may miss:

• Your regular employee contributions

• Contributions from your employer

• Tax relief on personal payments

• Potential growth on those amounts
  
  

The impact will depend on how long contributions remain paused and how much was previously being paid.

A short gap may make relatively little difference to someone with many years until retirement. A longer break could have a greater effect, particularly for someone approaching their planned retirement date.

If you begin another job, you may be automatically enrolled into a new workplace pension if you meet the eligibility requirements. Before assuming your retirement saving has resumed at the same level, check the new scheme’s employee and employer contribution rates.

You may also want to find out whether the new employer offers contribution matching.

For someone approaching retirement, redundancy can raise more difficult questions.

You may be considering whether to:

• Look for another full-time role

• Reduce your working hours

• Use savings temporarily

• Retire earlier than planned

• Begin accessing your pension

• Delay retirement while rebuilding savings
  
  

Accessing a pension earlier can provide income when earnings stop, but it could also leave less money available later. A defined contribution pension may have less time to benefit from potential investment growth, while some defined benefit schemes may provide a lower annual income when taken early.

Taking taxable money from a defined contribution pension can also affect the amount that can be contributed to pensions with tax relief in the future.

Before using retirement savings to meet an immediate income need, it is important to consider whether other support or resources are available. Once pension money has been withdrawn, the decision may be difficult or impossible to reverse.

If you receive redundancy pay, you may consider using part of it to make a pension contribution.

This may attract tax relief, subject to your earnings, allowances and individual tax position. However, money placed into a pension will normally be inaccessible until you reach the relevant pension access age.

Your immediate financial needs should therefore come first.

You may need the payment to cover household costs, repay expensive debt or create an emergency fund while looking for work. Paying too much into a pension could leave you short of accessible money during an uncertain period.

This is an area where personalised advice can be particularly valuable, as the right balance will depend on your wider finances and future plans.

Redundancy may not derail your retirement, but it creates a natural point to review where you stand.

Start by checking:

• The current value of your pensions

• Whether final contributions have been received

• The income your pensions may provide

• Your State Pension forecast

• How long contributions may be paused

• Whether your planned retirement date remains realistic

• What happens if you contribute more or less in future
  
  

You may find that your existing plans remain on track. Alternatively, you might decide to adjust future contributions, reconsider your retirement date or change how you expect to take your pension.

The purpose of a review is not to add pressure. It is to replace uncertainty with a clearer understanding of your options.

Redundancy is an employment change, not the loss of everything you have already built for retirement.

However, a gap in contributions or a decision to access pension savings early could affect the future income available to you.

A financial adviser can review your existing pensions, explore how redundancy may influence your plans and help you consider the options available before making a lasting decision.

Has redundancy left you uncertain about your pension? Speak to My Pension Expert for a personal retirement check-in.

Pension advice is tailored to your individual circumstances and can help you understand the options available before making decisions about your retirement.

This is for general information and does not constitute personal financial advice. The value of investments can fall as well as rise, and you could get back less than you invest. Tax treatment depends on individual circumstances and may change.