If you have pension funds from a previous employer some people mistakenly call this a frozen pension or pensions if you have more than one. A common choice for most people when leaving a company is to leave their old company occupational scheme benefits where it is and start a new one with their next employer. They may refer to their old pension as being a frozen pension, but this is not the case. The correct term is either a deferred pension or paid up pension.
Why is it called a Frozen Pension?
With these so called frozen pensions, the policy holder or deferred member will not be able to make any further payments into it. The reason the term frozen pension is not accurate is because pension benefits are not actually frozen. Depending on what type of company pension scheme you have, the pension fund could be invested (these are called Defined Contribution pension schemes and not frozen pensions). While this investment will continue to grow (or fall), you, your previous employer nor your future employer are likely to be allowed to make further contributions. You should receive annual illustrations of the benefits and projections of income from your trustees or fund provider. These illustrations will enable you to plan ahead for your additional pension arrangements.
The other type of pension scheme people sometimes call frozen pension is a Final Salary (sometimes called Defined Benefit) pension scheme. Again, this is not a frozen pension because the benefits you have accrued in your pension scheme will increase each year from the date you left that employer up to your retirement age. Some of these increases will be by inflation but some of it may be by even more but it is clearly not a frozen pension.
In some limited circumstances it could be worth considering transferring your old company pension into something else. This could give you the option to move your pension into a pension fund you can continue adding to, or that will yield greater benefits than the current scheme or give you greater control. However; because your old company scheme is not actually a frozen pension, you must be very careful when considering a transfer of your pension rights and it is rare this is ever advisable.
Beware of hidden charges on frozen pensions
Once you have sight of your frozen pensions you should check their value and examine your statements carefully. It’s not uncommon to think that while your pension is frozen it will be ticking over and growing, but this isn’t always the case.
Every provider imposes pension charges of some description, and these can have an impact on your savings. These include an annual management fee, which covers your provider’s admin costs; and exit fees that will be triggered the moment you withdraw or transfer your pension.
We only charge one annual management fee, plus there’s no exit fee if you leave us at any point. There’s also a 30-day cancellation policy, which means we will return your pensions to your old providers (if they’re willing to take them back) free of charge if you cancel your plan within 30 days of opening it.
Other fees can also be charged on frozen pensions which, over time, can chip away at your savings. By its very nature a frozen pension is inactive, yet some providers will charge an inactivity fee. This means that if you fail to make contributions over a set period of time you can be penalised.
Service fees, policy fees and underlying fund fees may also be charged so it’s well worth learning about the range of pension charges you could be paying and checking your plan’s small print.
Talk about your options
Whatever your situation it is important to keep all the information regarding these so called frozen pension benefits in a safe place so that when you reach the age at which you can collect your pension, you can easily contact the trustees or fund managers to request that the monies be released. Remember to file all the annual illustrations, and make sure that your spouse or other beneficiaries know where to find the paperwork in case you die before reaching retirement age. This is not a pleasant scenario, but it must be considered as it is an additional burden to those left behind if your paperwork is in a mess.
So remember, technically there is no such thing as a frozen pension because whether your pension fund is invested and therefore subject to investment fluctuations, or you are a deferred member with pension benefits increasing by other means, you by no stretch of the imagination have a frozen pension as it is always subject to change. If you decide to investigate transferring your pension into another pension vehicle, then contact the Frozen Pension Team.