What happens to my pension if I stop fostering?

When you stop fostering, the treatment of your pension depends on how it was built up and whether you continue paying into it. The key issues are whether the pension becomes deferred, how it remains invested, what charges apply, and whether you still have income that allows further contributions.

If you have a personal pension

A personal pension or self-invested personal pension normally remains in place after you stop making payments. The provider will continue to manage the existing fund under the terms you agreed, unless you choose to transfer it, change the investments or begin taking benefits when eligible.

Check whether the plan has:

• ongoing administration or investment charges;
• any contribution conditions or minimum payment requirements;
• valuable features, such as guaranteed benefits or protected pension ages;
• exit, transfer or withdrawal restrictions; and
• investment choices that remain suitable for your timescale and attitude to risk.

Stopping payments does not necessarily mean you should close or transfer the pension. Transferring can affect charges, investment options and benefits, so compare the existing plan with any replacement before making a decision.

If you have a workplace pension

Stopping fostering does not by itself end a workplace pension connected with another job. If you leave that employment, the pension will usually become a deferred workplace pension, subject to the scheme rules. Benefits already built up remain governed by that scheme, while future contributions normally require you to remain employed and eligible under its rules.

Keep the scheme’s correspondence and tell the provider if your address changes. A deferred pension can be overlooked if statements continue to go to an old address. Your annual statement should show the value or benefits accrued and explain how to contact the scheme.

If you are already taking pension benefits

If you have started drawing a pension, stopping fostering will not normally alter the payment terms of that pension. However, your overall income may change, which can affect your tax position. If you are taking flexible benefits from a defined contribution pension and later want to make further contributions, ask the provider or a financial adviser whether special contribution rules apply.

Can you continue paying into a pension?

You may be able to carry on making personal contributions after fostering ends, but the amount of tax relief available depends on your circumstances and the relevant pension rules. This may include income from employment or self-employment, as well as your tax status and any existing pension benefits.

Fostering payments and qualifying care relief have specific tax treatment. Do not assume that the amount you received while fostering automatically determines how much you can contribute with tax relief. Ask your pension provider, accountant or a regulated financial adviser to confirm the position for the tax year in question.

What happens to your State Pension?

Stopping fostering does not erase your National Insurance record. Your future State Pension position depends on your qualifying years and on whether you continue to build entitlement through employment, self-employment, National Insurance credits or voluntary contributions. Review your National Insurance record and State Pension forecast so you can identify any gaps and check whether further action is worthwhile.

Foster carers should also check carefully whether any credits or contributions applied during their fostering period. The position can depend on the way the fostering arrangement and your wider circumstances were treated, so confirm it with the relevant government service rather than relying on an assumption.

Review the pension before making changes

Stopping fostering may be a useful point to review your wider finances, particularly if fostering made up a significant part of your household income. Consider:

• how much you can afford to contribute from your new income;
• whether your current investment approach still matches your planned retirement date;
• the charges on each pension you hold;
• whether you have more than one pension that could be consolidated; and
• who you have nominated to receive any applicable pension benefits on death.

Do not transfer, cash in or consolidate a pension simply because you are no longer fostering. Some older arrangements contain benefits that may be lost on transfer, and taking money early can have tax and long-term financial consequences.

Practical steps to take

• List every pension you hold, including personal, workplace and any public-sector or defined benefit arrangement.
• Tell each provider if your contact details or circumstances have changed.
• Ask what happens to contributions, charges and investment management when payments stop.
• Obtain up-to-date statements and check the nominated beneficiary information.
• Review your National Insurance record and State Pension forecast.
• Take regulated financial or tax advice before transferring a pension, accessing benefits or making a large contribution.

The most important distinction is between stopping contributions and losing pension rights. These are not the same thing. Your next steps should be based on the specific scheme rules, your other income and your retirement plans, rather than on the fact that you have stopped fostering alone.