Acumen Financial Planning

January 2003

MONEY MATTERS AND CHANGING JOBS

The New Year often corresponds with a time to reflect on your current career and even consider changing jobs. But when moving to a new employer, there are several financial considerations to take into account, as Bob Thomas, corporate financial consultant at Acumen Financial Planning Limited, discusses.

When considering accepting a new appointment, there are three main factors to consider throughout the process – salary, benefits and pensions. It is also a wise move to discuss this with a qualified financial planner who can give you up-to-date advice and help to point you in the right direction.

Salary
When discussing salary, you should clarify with your new employer whether this is a basic package or if there are performance related enhancements, or housing and relocation allowances. A basic salary, combined with guaranteed overtime, will be taken into consideration when effecting a new mortgage, so thought should be given to the borrowing potential of your new salary package.

Benefits
Regarding benefits, it is important to clarify if your salary will continue to be paid during a period of disability or sickness and if so when will your salary stop and the disability benefit start? You should also be aware that performance related pay may stop or be suspended during disability or sickness. A lack of income during disability may effect commitments such as mortgage payments and other borrowings, so it is important to establish how long disability pay will be paid.

If you’re working in a potentially dangerous environment, then death in service is an important benefit to bear in mind. What will your dependants receive in the event of premature death during service and will these payments be sufficient to provide for ongoing family living standards? Usually up to four times your basic salary is paid in the event of death in service, but the precise multiple of your salary to be paid needs to be clarified from the outset.

Some companies may also offer share save schemes that have a great degree of variation and can be considered to supplement your regular savings and investments. Shares are usually purchased at a discount price and offer good value for money, although there may be tax considerations when shares are sold.

Pensions
If your new company operates a pension scheme, then you should find out if they pay all the costs associated with membership and if you need to contribute to supplement their contribution. Also, do they pay a set percentage of salary and will that increase in line with the length of service? All pensions previously accrued should be reviewed to ascertain whether they are sufficient when added to any current company schemes to meet your retirement goals. Consideration should also be given to transferring existing schemes to your employer’s scheme or to a personal scheme in order to reduce costs and improve investment returns.

There are three main types of pensions that should be considered:

A defined benefits scheme is based on salary and length of service with your employer and final benefits are usually guaranteed. Early leavers will usually have their accrued benefits increased annually by a set percentage or inflationary indices, or both. The final benefits are not linked to the stock market and are considered lower risk to the employee. This sort of scheme is becoming less common due to restriction of membership to new employees and scheme closures.
Money purchase arrangements are linked to funds and investments listed on a stock exchange and return are based on how well investments perform. Insurance companies or financial institutions usually operate these schemes and contributions are usually a fixed regular amount or a percentage of salary.
Free standing additional voluntary contribution schemes are funded by the employee only. The maximum contribution an employee can invest is limited to 15% of salary to all such schemes in any fiscal year.

Although it is flattering to be offered a new job, it is vital that you assess the finer points on salary, benefits and pensions and consider the bigger financial picture before officially accepting an offer of employment. If moving to a new job means better prospects and perks then you should think carefully about what you want to do with that new package. You might want to settle debts, pay off credit card bills or spend money on your home, car or leisure activities. However, as well as thinking of the immediate, it is important to think ahead to the long term and use a new job as the launch pad to plan your financial future. By discussing your options with a qualified financial planner you will be able to get the best out of your new job packages and get the year off to a flying financial start.