What better time to discuss financial planning than when you’re moving jobs? Whether it’s a simple financial restructure or a complete makeover, a change of income and a new benefits package make this the perfect time for a review. So, if you’ve accepted a position, recently moved, or are just thinking about it, below are some key areas to add to your planning agenda.
What will you do with your pay rise – spend it or save it? It’s too easy to absorb a pay rise into your usual standard of living. Within a few months, you’ll wonder how you lived without it. Now is the chance to change past behaviours and start a pattern of saving. You could create an emergency fund or pay regular contributions into an ISA. Otherwise, why not increase mortgage repayments, if you have one, to reduce debt.
A financial planning meeting would be ideal for assisting in your decision to create a healthy balance between spending, saving, and debt repayment.
If your new package includes a bonus, why not plan to make some lump-sum investments. Again, a financial meeting would be ideal for advising on how much risk you need to take and how much risk you want to take.
A new job is an excellent time to review your pension savings. Your new scheme may have matched contributions from your employer, which should always be maximised. This is a chance to inflation-proof your contributions by setting them as a percentage of income rather than a fixed amount. When your income goes up, the contributions do too.
It is a good opportunity to review any pensions from previous employers. Your new scheme may provide a simple way to round up any previous pots into one; not only would you create a common investment strategy, but you would also save on admin.
If you’re going to make significant contributions to your pension, it’s worth getting some advice to avoid tripping up on technicalities:
- Check your allowances. If your new income exceeds £240,000, the Tapered Annual Allowance may restrict your pension contributions. If your total pension is approaching the Lifetime Allowance (£1.0731m), joining the pension may not be in your best interests although this will depend on your circumstances.
- Check whether the new scheme has been set up on a salary sacrifice or net pay arrangement. Salary sacrifice means that you receive relief from tax and NI at source. A net pay arrangement means Higher Rate taxpayers need to reclaim the additional tax relief through a tax return.
What better time to review your retirement planning strategy – how much you need to save and what level of risk you need to give up work when you want to.
Most employers offer an insurance benefits package. This commonly includes, but not limited to; life cover, income protection, and healthcare. It is often possible to enhance these benefits at outset and, as they are usually current costed (i.e. based on your current age), this will be the cheapest way to buy additional cover should you need it.
A review of your protection needs before moving jobs would help you decide whether to buy any more insurance.
Finally, there is one idiosyncrasy with company death in service (DIS) benefits that you should check if you have Fixed or Individual protection for a large pension pot. Many DIS schemes are written under a pension Mastertrust. This means if you join the scheme, you’ll lose your pension protection. If in doubt, get this checked by a professional as loss of protection is expensive.
Next time you’re moving jobs, talk to a financial planner. You never know, if you’re planning is entirely in order, they may tell you to spend every extra penny you’re about to earn on yourself!