Should I Move A Frozen Pension?

Should I move a frozen pension to a different pension fund or leave it where it is? Is a question we are often asked. The answer depends on many issues including personal circumstances and attitude towards risk. There is no simple answer but in this post, we have tried to cover the information you need to collect and the key points to check.

You will need your last annual pension statement. Statements from the previous four to five years may also help. You will also need the terms and conditions of your frozen pension scheme.

If you have lost track of your pension there are various free tracing services available that should provide details of the pension administrators. Armed with this information you can request copies of any missing information.

This post covers defined contribution personal and workplace based pension schemes only. It does not cover final salary (defined benefit) pensions

Pension Fund Growth

The first issue to check is the growth of your frozen pension fund over time. Has your pension been growing roughly in line with industry averages? This information should be shown on your pension statement. A single statement may cover several years or you may need to collect many statements to get a view over five years or more.

Defined contribution pension schemes have, in general, increased in value every year from 2012 to 2017. The growth has been variable ranging from around 3% in some years to over 15% in others.

Growth year on year is not a given. In 2011 growth was negative (a reduction in the value of a investment) as was growth in 2018. The last quarter of 2018 was particularly poor for several economic and political reasons.

The Moneyfacts UK Personal Pension Trends Treasury Report gives average annual pension fund growth you may use as a guide. The figures show growth before the impact of inflation is factored in. As a guide inflation has been consistently below 3% since 2012.

Remember there may be valid reasons your pension policy performs worse than average in any particular year. However, if its performance is consistently below average that should be a cause for concern.

Frozen Pension Scheme Fees and Charges

Over an extended period of time pension fees can erode the value of a pension fund significantly. Some charges are inevitable but if they are 3.5% to 5% of the fund value per annum it may be worth considering action.

Be careful to read the annual pension statement and pension documentation carefully. Most providers are open and transparent about the level of fees but some (especially older pension policies) are not. Various elements make up the total fee. It is important to check you have the total fee not just one or more parts of the total.

Protected benefits

If considering moving a frozen pension from an existing provider it is important to check you will not be giving up valuable benefits. The pension scheme may offer an early retirement date or a protected annuity rate that may be better than what is on offer today. There may be various benefits that you may not want to give up by moving to another provider.

Retirement Planning Exercise

You may have several frozen pensions. You may have workplace pensions or personal pensions you are contributing to. You may have ISA’s or other assets. It is important not to consider a single frozen pension in isolation.

Ideally, you should consider all your assets, including your pensions, at one time as part of a retirement planning exercise. You will need to consider:

  • Your state pension entitlement.
  • Your total pension fund.
  • Your expected financial position during retirement.
  • Your pension choices (annuity and drawdown).
  • Your beneficiaries and your tax position.

It may be a frozen pension is performing well. It may be it offers valuable protected benefits. Or your personal circumstances may dictate it is best left where it is but it is important to check at the earliest opportunity. Failure to take action if there is a problem can have a major impact on your retirement funds.

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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. Tax regulations can change and any figures quoted above are at the date of publication.