According to an Association of Accounting Technicians survey in 2015 the average individual will work for six different employers during their lifetime. Many of those employers will offer a workplace pension scheme which is paid up (frozen) at the point the person leaves to take up alternative employment. It should be no surprise therefore that many people hold one or more frozen pensions that can often be forgotten about until it is time to start thinking about retirement.
In a previous article, we discussed the options available to those with a frozen pension. In this post, we explain more on one of those options – Transferring a frozen pension to an alternative personal pension scheme. The options are:
- A Stakeholder Pension.
- Self Invested Personal Pension (SIPP).
- A Personal Pension.
For those with more than one frozen pension It may be appropriate to combine and transfer all of those pensions into a different scheme, or transfer only one (or more).
Why Consider Transferring A Frozen Pension
The level of fees applied (particularly for pensions set up 10 years or more ago) can have a serious impact on the value of a pension fund at retirement. The level of investment growth compared with industry averages should also be an area to investigate closely.
If either growth or fees (or both) are an area of concern it may be worth considering transferring a frozen pension to a different provider. In most cases this may be actioned at any time although no withdrawals from a fund may be considered until an individual is over 55 years of age.
A transfer is not the best option in all circumstances and it is essential to carefully check any valuable benefits that may be given up and the level of fees the pension provider may wish to charge to facilitate the transfer.
Stakeholder pensions were introduced in 2001 primarily for those on low incomes or where a standard personal pension product was not suitable. They must comply with Legislation which caps the level of fees and ensures the pension is flexible with minimal restrictions on the level of contributions and continuity of payments. Although superceded to some extent by auto enrolment Stakeholder pensions remain suitable for some individuals.
Self Invested Personal Pension (SIPP)
A Self Invested Pension Plan (SIPP) delivers a high degree of control over how an individual’s pension scheme is managed. SIPP’s allows the pension holder to invest in a wide range of investments rather than rely on a pension funds managers to make investments on their behalf.
A SIPP must be managed appropriately and can have relatively high fees and charges. We discussed transfer to a SIPP in detail in an earlier post you may read here.
A personal pension (also known as a defined contribution pension) sits somewhere between the stakeholder pension and a SIPP. It is similar to a stakeholder pension as a pension provider is chosen and regular contributions are made to that provider, the costs of these plans can be more or less than those of a stakeholder plan but they usually facilitate a wider range of investment options however they do not offer the self investment freedom offered by a SIPP and you are generally reliant on the skill of the chosen investment manager to deliver growth. However, charges and fees tend to be lower than a SIPP.
The decision on which type of pension is best to accept the transfer from a frozen pension is entirely dependant on the individual, their circumstances and aspirations. All deliver various potential rates of pension fund growth that must be balanced against risk, fees and flexibility.
Should you wish to talk through transferring a frozen pension then please do not hesitate to give us a call on 0800 043 8341 or Email us on firstname.lastname@example.org. Alternatively complete the contact form below, enter a convenient time in the comments box and we will call you. We are authorised and regulated by the Financial Conduct Authority (FCA) and operate UK wide.