Do you have a frozen pension? You may have heard the term ‘frozen pension’ and wonder what it means and what to do. It actually refers to a pension that you had in a workplace that you no longer pay into. This could also be called a deferred or a preserved pension.
Just because you have left the workplace doesn’t mean you should not be ensuring it continues to be well invested and it may well still benefit from the new pension freedoms and you should ensure that you receive an annual statement detailing the current value and future forecast of the pension.
Types of Pension
When considering pensions there are two main types.
- The first is a final or average salary scheme pension (otherwise known as a Defined Benefit Scheme).
- The second a Money Purchase scheme (or a pot). With a ‘Money Purchase Scheme’ a pot of money is built up and what you get when you retire (your income in retirement) will depend upon how much you and your employer contributed and how well or badly the fund has been invested over the years.
Firstly it is really important that you know what type or types of pension you have and how much they are worth and what they may be worth in the future. This will help you to understand what your income will be when you stop working. For many people, the statements are very confusing and they don’t understand the paperwork that they get through the post and so just accept what they get when they retire without question.
If you do not receive any statements through at present or If you have moved address and not updated the scheme administrators then you may be able to track old pensions using the free government service which is the Pension Tracing Service https://www.gov.uk/find-pension-contact-details
What you should expect from your pension
Although you are no longer paying into a frozen pension it should continue to grow.
The statements that people receive are varied and rarely clear so it would be a good idea to have a qualified independent financial adviser have a look through them.
For final salary schemes, it is often always the case that it is best to leave them where they are as the benefits are guaranteed with no investment risk. There may be rare occasions that it is suitable to transfer out from such a scheme and this could be discussed on a case by case basis.
For money purchase schemes you can leave the pensions where they are and access them at the normal scheme retirement age. Alternatively, you may want to consider moving them where the charges may be lower and performance may potentially be better.
Once you know where your pension pots are and how much is in them you may wish to look at consolidating them into one pot.
Why might I want to consolidate my pensions?
- Easier to manage/understand
- May reduce charges
- Receive ongoing advice
- Wider choice of funds
- Flexible access at retirement
It may not be a good idea to move a frozen pension if you would be subject to exit penalties or if they benefit from valuable guarantees or if the funds are performing really well. A pension switching report will help you to make an informed decision.
The main thing is that you are aware of what you have in place and what income this is likely to provide in retirement. Part of our main work at Veracity Financial Planning is reviewing existing pensions, explaining what they are worth and what they may be worth in the future. In simple terms, tidying them up and giving advice that is tailored to individual circumstances.
Sally Jackson is an Independent Financial Adviser with Veracity Financial Planning. You can book a free consultation with Sally by visiting www.trentwillsestates.co.uk/independent-financial-advice or by calling 07921196730.