The concept of a job for life appears to be long dead. Nowadays, it is not unusual for people to change jobs more times than they move house.
Moving to a new company can bring with it a fair amount of stress and anxiety, and preparation is key to ensuring that the transition is made without a hitch. Although changing jobs is often a way to advance your career, if the disruption that it can cause to your personal finances is not expertly managed, the long-term consequences can be very damaging.
All too often, people are disproportionately focused on one particular aspect of the remuneration package: the salary. The result is that they fail to consider the wider implications of the move.
This week, we talk about managing your personal finances when you change jobs.
As early on in the process as possible, you should get in touch with us and discuss your new benefits. It’s important that you look beyond the salary. We can help you determine whether or not your new job gives you the financial protection you want and whether or not it will enable you to stick to the financial roadmap that we have designed together.
“Compensation is not just about salary. There are bonuses and share options, pension contributions and healthcare… a whole host of other things to consider”, says Nick Rolf, Investment Quorum’s Director of Private Clients.
One of the benefits that employers often provide, for example, is death in service cover. This can pay out a lump sum of up to five times your salary if you die while in employment. You have to be on the payroll at the time of death to qualify for payment. But unlike life insurance, death in service cover ends if you leave the company. If you lose your job or change employers, you’ll no longer be protected. In some cases, death in service will be linked to the company pension scheme, so if you’re not signed up to that then you won’t be covered.
Getting a mortgage is hardly ever straightforward. And being in the new job – one that possibly includes a probationary period – never helps. Some banks may still look favourably on your application, but your options will certainly be more limited, which will inevitably mean less favourable terms.
So if you are thinking of moving house, borrowing money or remortgaging… it might be a good idea to get all of that over and done with before you consider switching jobs.
If you are switching jobs towards the end of your career, you will most likely have accumulated a number of different pension pots.
So simply keeping track of them is one of your biggest headaches. How much will each one yield in retirement? How is each one performing? What charges are being levied? Imagine having to answer those questions ten or fifteen times over.
“If you are not incredibly organised, the best solution might be to consolidate your pensions and transfer them into a self-invested personal pension (SIPP)”, says Nick Rolf. This is essentially a ‘DIY’ pension, allowing you to choose which investments to hold and manage yourself in a pension wrapper. Usually, you can pick from a wide range of investments, so if you’re an experienced investor, moving to a SIPP may suit you. If you’d rather not have this responsibility, some SIPP providers offer ‘off the shelf’ ready-made portfolios, so that you don’t have to choose and manage investments yourself. A SIPP transfer may be worth considering – they often have low charges, and can offer access to investment options that would be unavailable to you if you transferred to another personal pension.
You will most likely be either offered a workplace pension, into which your employer will contribute. Or you will be asked to nominate a scheme into which payments should be made.
You will need to make decisions about how this money is invested. “The level of contributions, the charges deducted and how the investments perform, will, in no small part, affect whether you hit your retirement goals”, says Nick Rolf. “There are lots of things you need to consider. If you have a pay rise, for example, it may push you over the contribution allowance for pensions. There are certain bands, and if you have total compensation (including dividends and bonuses) over a threshold of £240,000, then the £40,000 that you are allowed to put into your pension scheme every year may get curtailed. We can talk to you about how your compensation is structured and help you with all of these important decisions”.
Your previous job probably included a series of benefits to protect you against life’s unexpected events. “What if I die? – How much money will my family get? Will it be enough to secure their financial future?”. “What if I am incapacitated or suffer critical illness? – How much will the company sick pay scheme give me? For how long will I be on full pay? When does that amount get reduced to half pay?”. “Am I still covered by my previous private medical insurance package? Can I carry it over to my new job? How long before it elapses? Might I need medical underwriting?” Again, these are all questions that Investment Quorum can help you answer.
We can help you ensure that you have a minimum level of protection in place to cover the unexpected – and obviously, that is particularly important if you have dependents or a mortgage. Each job change will mean changes to that level of protection. We can help you make sure that the benefits that you have in your new job cover your needs.
And if they do not, then we can help you do something about it. After all, if your salary has increased, then you might be able to buy in the protection you need from elsewhere.
Obviously, if you have life insurance, a pension scheme and death in service insurance, and the very worst happens… then lump sums will be payable.
You will need to decide where these are to be paid. In most circumstances, your beneficiaries will be your spouse, your civil partner or your children. But if you have not nominated a beneficiary, then any lump sum pay-outs could be delayed, or could even be made to somebody who might not necessarily have been your first choice.
Nominating your beneficiaries is usually relatively straightforward – you can do it online.
Throughout your time as a client of Investment Quorum, we will check in with you on a regular basis and hone your financial roadmap to make sure it reflects changes in your personal and professional circumstances.
We will discuss your goals and aspirations with you, and then make sure that your financial plan is on track to help you achieve them. A new job and the corresponding new compensation package that goes with it will need to be reflected in your financial plan.
Your goals probably haven’t changed. But your new financial circumstances will usually mean that you achieve them sooner than expected.
“Changing jobs can be exhausting and time consuming… and you will probably have very little in the way of resources for doing anything else. But that is precisely when talking to your adviser is crucially important”, says Nick. You will doubtless have put in a great deal of hard work into getting your new job. Don’t undo the hard work that you will have invested in your personal finances by failing to take any of these important changes and considerations into account.