In 2015 it is estimated in excess of £2Billion is unclaimed in U.K. frozen pension scheme pots with the benefits going to the large investment funds that control them. Age UK research in 2013 found that 23% of British Adults hold at least one pension they have lost track of.
Most people leaving a company tend to leave their company pension scheme where it is and start a new one with their next employer. With the average U.K employee now having six jobs in a lifetime it is little wonder that so many pensions are lost, left unclaimed or left behind in poorly performing funds.
In this post we consider the options open to those with a frozen pension scheme but first a clarification of terminology. The term “frozen” is widely used but it is not in fact correct. The term has arisen because no further payments can be made into the pension scheme and it is “frozen” until retirement age but the correct terminology is either a deferred pension or paid up pension.
Your former company pension scheme is actually either invested (and therefore subject to investment fluctuations and change) or increased in deferment (by either a predetermined amount or by some measure of index linking) so not frozen. So what can you do with a frozen pension scheme? what are the options available to you? They are:
- Leave the pension fund where it is.
- Transfer the fund into your next employment pension scheme.
- Combine several pension funds into one scheme.
- Release the capital.
For those who have left behind a final salary pension scheme with a previous employer the issues are different to those outlined below (you can read more here) but in all cases when considering each option your age and personal circumstances will be highly relevant.
The first step is to identify which frozen pension schemes you may have, who controls the funds, the fund value and the terms. Some independent financial advisers will source all this information on your behalf as part of a free pension review or there is a U.K. government website available that will at least trace pensions for you but it does not provide details of the terms or fund value.
Leave the frozen pension fund where it is
It may be best, particularly when nearing retirement age, to leave the frozen pension scheme where it is. If it is an older scheme it may have valuable guaranteed benefits, there may be high exit charges and a new fund may not perform as well as the existing fund.
It is important to establish exactly what the existing scheme offers and weigh up the pros and cons of staying or doing something else. A pension is a long term investment so it is important to take a long term view. Mistakes can have a major impact on your available retirement fund so consider your options carefully.
Transfer the pension fund into your new employers pension scheme
Some employers have recognised the problems associated with people working for several different employers during their working life and have taken this into account when setting up their work based pension schemes. It is therefore always worth checking on the terms of the pension scheme when moving to a new employer.
If the option is available to transfer funds into your new employers pension scheme you should still carefully consider the pros and cons of transfer outlined above.
Combine several frozen pension schemes into one fund
Combining several (or a single) frozen pension funds into a personal pension plan can be an attractive option in some cases. These assume regular monthly contributions and many also allow for lump sum investments (from Frozen funds). There are several options available including SIPP’s (self invested personal pension) and most provide a high degree of personal control.
It is vitally important to carefully check any benefits offered by your existing scheme (such as guaranteed annuity), annual charges, exit charges, current growth rate and investment portfolio and compare these with whatever personal pension plan you may be considering. There are a bewildering array of personal pension plans available so careful consideration of the best option is required.
Release the capital
Although this is a genuine option for a small proportion of people facing a particular set of circumstances we thought long and hard about including it here. It is one of those issues that gives everyone in the marketplace, including those offering genuine financial advice, a bad name. There are those who have spotted an opportunity for themselves. There are many online scams to watch out for because if you fall for them they will leave you with no retirement fund (or best case a severely reduced fund) with no recourse to the authorities.
The first important point to note is the option to fully encash a pension is only available to those over 55 years of age. There are scammers in the marketplace who will claim it is available earlier but fail to tell you about the huge tax bill you will face if you succeed. Fundamentally, if you do release the capital (once you are over 55) you will have less capital in retirement. Yes, you could re-invest that capital elsewhere but in the limited time available will it make more than your pension scheme and what is the tax position?
If you would like any advice or support relating to your frozen pension scheme please feel free to contact us for a (no obligation) discussion on 0800 043 8341 or Email us at email@example.com. Alternatively, for a call back, please complete the form below, add a suitable time in the comments field, and we will call you. We operate U.K. wide.
The information in this article does not constitute financial or other professional advice.