For many people the New Year is a time for change and a fresh start – and that often starts with their career.
With around a third of UK workers planning to find a new job or change career in 2025, according to a survey by Indeed Flex, January is perhaps the most likely time to kickstart that process.
With the days of a ‘job for life’ well behind us – research suggests more than half of adults will change careers (not just jobs) during their working life – it’s become the norm to reconsider what we do for a living. And it might become even more commonplace, with the World Economic Forum predicting that two fifths of us are in jobs that by 2027 will be disrupted by technology.
The reasons for wanting a career change are varied, from work-life balance and personal wellbeing issues to working conditions and job satisfaction. Money is clearly a prominent one too, although it can also be a barrier to making a move.
So, here we take a look at some of the financial aspects of changing career that you’ll want to keep in mind.
Will change come with a cost?
Changing to a different sector produces an average ‘pay penalty’ of £3,731 a year for full-time workers, according to a study by the Learning and Work Institute. However, it found that people changing jobs subsequently enjoy pay growth 2.9 times faster than those who stay put.
The costs of changing jobs can include retraining – especially if it means time out of the workforce for full-time study – and any expenses related to relocating and travel. In some cases it might mean losing important company benefits such as pensions and insurance. The implications are far greater again when trading paid employment for self-employment.
What does a change in pay mean?
If a career switch means a reduction in pay, you may have to make compromises in spending or find other ways to bridge the gap. An emergency cash fund of three to six months of income can be a very useful buffer.
There can be unintended consequences to consider even if you’re getting a pay increase. For instance, if that pay rise pushes you into a higher tax bracket you could end up losing your financial gain to tax, as well as potentially compromising your entitlement to child benefit and other state payments.
Many of us will also respond to higher pay by spending more, so be careful not to fall into that trap without considering how else you might deploy your increased earnings. It could be more beneficial in the long run to clear debts or start/increase pension contributions, for example.
What to do about my pension?
It’s easy to overlook your retirement savings when you make a move, but career switches can have a big impact further down the road. If you’ve already got a pension with your current workplace, you’ll need to consider whether to leave it where it is or consolidate it into your new employer’s scheme. The former is usually possible, though it could raise the risk of losing track of pension pots if you’ve opened a few over your working life.
Deciding whether to move your pension will depend on factors such as the contributions paid in by the employer – as some contribute more than others – and charges. Either way, make sure you continue contributing to a workplace pension if you have access to one. There are also later life consequences of earning less for longer.
Which benefits do I need to look out for?
Some employers are much more generous than others when it comes to the employee benefits offered on top of pensions and insurance. And these benefits can be very valuable, making it important to weigh them up. For example, some companies provide insurance cover such as life insurance, income protection and critical illness cover, for which you may be very thankful one day.
The value of different benefits will depend largely on your needs. Flexible work policies – such as 4-day weeks and remote working – might be important to you, or perhaps private medical insurance is a bigger attraction. If you’ve got a young family you might want to look at the support an employer offers to parents, such as childcare assistance and school-friendly working hours.
How can I protect my income?
Unfortunately, changing job or career is not always our decision. The end of the ‘job for life’ era is also one of greater employment insecurity. That means our financial safety needs to be robust, to ensure we can get through periods between jobs.
The emergency cash fund we mentioned can provide helpful peace of mind. So too can insurance policies such as income protection, which is designed to cover your income in the event of not being able to work due to illness or an accident. These policies typically pay out between 50 and 65% of your stated income if you’re unable to work, and can do so for as long as needed.
