What To Do About Your Retirement Savings When You Change Jobs

When you decide to move on from a job, there is often a mix of excitement, uncertainty, and a fair amount of paperwork to get through. Amidst the goodbyes, offer letters, and career plans, one important decision tends to sit quietly in the background: what to do with your retirement savings. It is one of those choices that does not feel urgent in the moment, but it carries long-term financial consequences that can quietly shape your future.

 

For years, leaving a job came with a fairly standard set of options for your retirement savings. You could take the money in cash, often the most tempting but financially harmful choice, or you could move it into a preservation fund, transfer it to your new employer’s retirement fund, or invest it in a retirement annuity. While those options are still available, the rules around accessing your money have changed meaningfully with the recent implementation of the two-pot retirement system, which officially came into effect in September 2024.

Since then, your retirement contributions have been split into two parts: a retirement pot and a savings pot, with your previous retirement savings ring-fenced as a vested component. Now, when you resign, you no longer have the option of simply withdrawing everything in your fund. You are only able to access the money held in your savings pot, the portion designed to give some liquidity during your working years. Even then, you can only make one withdrawal a tax year, and the withdrawal is taxed at your marginal rate. The retirement pot, which now holds two-thirds of your new contributions, is locked in until you officially retire. The vested component, made up of all your retirement savings accumulated before September 2024, remains accessible in full on resignation, but any withdrawal from it will trigger tax, and could negatively affect the tax-free portion of your retirement lump sum later in life.

What has also changed in recent years, and something many people still are not aware of, is the option to remain a paid-up member of your former employer’s fund. In the past, resigning from a job meant exiting the fund entirely, but you can now choose to leave your accumulated savings invested in your previous employer’s fund without making further contributions. Your money continues to grow with the fund’s underlying investments, and you can decide later to transfer it to a preservation fund, a retirement annuity, or withdraw from the savings pot if needed. This is a practical option for people between jobs, considering self-employment, or wanting to delay a bigger retirement decision without disrupting their investments.

It is also important to be mindful of how tax affects any withdrawal choices you make. Retirement lump sums are taxed on a cumulative basis, meaning every withdrawal you take before retirement, whether from the savings pot or vested component, reduces the tax-free benefit you will qualify for when you eventually retire. This is something many people only realise when it is too late to change course.

One of the strongest advantages of keeping your retirement money inside the retirement system, whether in your old employer’s fund, a preservation fund, or a retirement annuity, is the tax-free growth it continues to enjoy. The earlier you withdraw from it, the less benefit you gain from compound growth over time, and the harder it becomes to replace that lost capital in future years. It might seem like a harmless decision at the time, especially if you are sitting with debts or financial pressures, but the long-term damage can quietly build up.

So, while changing jobs is often about new beginnings, it is worth pausing to carefully consider what happens to the money you have been saving all along. The two-pot system has changed the rules of the game, offering some useful flexibility through the savings pot while tightening protection around the retirement pot to safeguard your future income.

In moments like these, it is wise to think not just about what feels convenient now, but about what will set you up for the life you want in the decades still to come. Because while your job may change a few times over the years, your need for a secure, dignified retirement will remain constant.