Frozen pension scheme – What are the options?


In 2015 it was estimated over £2Billion was unclaimed in U.K. frozen pension scheme pots. Age UK research in 2013 found that 23% of British adults hold at least one pension they have lost track of. In this post, we consider the options open to those with a frozen pension.

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.

When considering each option age and personal circumstances are highly relevant. For those with a final salary pension, the issues are different to those outlined above and it is important to take professional advice.

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. Alternatively, there is a U.K. government website available. This may be used to trace pensions but it does not provide details of the terms or fund value.

Leave the frozen pension scheme 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.

Frozen Pension

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.

Combine several frozen pension schemes into one fund

Combining several 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 a 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.

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 significant fee and huge tax bill you will face if you succeed.

There are those who have spotted an opportunity for themselves and there are many scams to watch out for. If you do fall for a SCAM they may leave you with no retirement fund (or best case a severely reduced fund) with no recourse to the authorities.

There is evidence fraudsters are trying to take advantage of people’s interest in the pension freedoms. It is vitally important to consider personal circumstances. There are two key points to review before cashing in a frozen pension scheme (in part or in full), they are:

  • What impact will it have on your retirement?
  • What will you use it for?

A lump sum from your pension in your 50’s or early 60’s may seem like a wonderful idea but it is vital to consider what you will live on in later life. Life expectancy has increased over the past 10 years and taking a lump sum now could leave you dependent on the state in later life.

You may believe you will not actually live into your 80’s or 90’s but you need to consider if you are prepared to take that gamble. What you will do with the lump sum? You may plan to use it to pay down your mortgage or pay off debts but is there a more appropriate route to reach that goal? Talking through the issues with an Independent Financial Adviser can help you assess the best option for you.

Appropriate Pension Fund Investments

Linked to the scams (point above) is the choice of appropriate investments. Some investments will make sense given your personal circumstances and some will not.

There was an initial high level of interest in buy to let properties immediately before the pension freedoms came into force. Individuals were considering cashing in their pension pots and becoming landlords. This is just one example of what may (or may not) be an appropriate investment.

The wrong investment could lead to you losing a substantial proportion (if not all) of your pension fund so it is essential you take appropriate advice. There are some who promote investments that are pure scams. Others may suggest unregulated investments that appear to offer high returns but also carry significant risks. Typical schemes include investments in foreign property, timeshares, oil and even carbon credits. Check the FCA Warning List for a list of firms to avoid.

Tax Implications

When cashing in a pension the first 25% is tax-free the balance will be taxable at your highest marginal rate. This could take an individual into the 40% or even 45% higher tax brackets meaning that the majority of the amount withdrawn could be taxed at this level.

This is a complex subject and it is best to engage an Independent Financial Adviser to consider the tax implications and suggest your best way forward.

You can read more about how we may be able to help here.

If you would like to ask a question (without cost or obligation) then simply complete the contact form and one of our advisers will Email an answer. Alternatively, feel free to contact us on 0800 043 8341 or Email us at We operate U.K. wide.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance. This blog is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investment or course of action. The information in this article does not constitute financial or other professional advice.


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