With the average person having at least 10 jobs throughout their working life. Gone were the days where working for one company for your life is still the norm and thus only having one pension to deal with.
With this amount, people that have worked in the U.K will have frozen pensions from their previous employer. Many have forgotten to combine the funds of their previous employer.
What is a Frozen Pension?
A frozen pension in the U.K refers to a pension scheme that you or your employer don’t contribute to anymore. The official name is dormant pensions.
The pension can still grow from the funds that are within the pension. However, the funds that they are in rarely grow at the rate you need them to and you have lost the contribution aspect so they are just sitting there, frozen. Also, you will still get pension statements at least yearly from the pension provider. You can transfer your pension to your current provider or you can transfer it into a SIPP which is usually the better option than QROPs, and this means you can decide what you would like to invest it in. However, with your current employer if you opt-out and prefer to invest in your SIPP you lose your employer’s contribution. Having the employer’s contribution is a good idea because otherwise, you would be putting a lot less into your pension pot.
If you do have a frozen pension a way to find it is through the HR department where you previously worked or the government has put in place a pension tracking service https://www.gov.uk/find-pension-contact-details
What are the options with frozen pensions in the UK?
Leaving your pension(s) where they are. This can be a feasible option for some cases. You will need to check your statements and would seek professional advice to weigh up your options.
Personally, I would compare your pension fund with the funds benchmark and what you are aiming for and see from the statements how it has performed. I see many that don’t do well because the company has to invest in ultrasafe portfolios.
For me (not financial advice), if you are looking for a more aggressive portfolio that is geared more towards equities. You would most likely have a better chance with SIPPs as the pension funds are geared for generic investors and are pooled mainly designed to be safe and steady, weighted towards bonds that are deemed less volatile than equities. This is not all bad, as the funds are safe but usually see returns in many pension funds that don’t return much above inflation.
If you are in your 30s and have 30 years of pension the return could work out significantly less.
£100,000 pension at 5% over 30 year period is £432,194.24 and £100,000 pension at 3% is £242,726.25 a difference of £189,467.99
I would get in touch if you would want to review your options for personal circumstances.
If you would like to read more articles on pensions then please look at our articles page.
Can I Consolidate My Pensions?
You do have options to consolidate your pension’s into a private pension, you will need to find out the fees for exiting the pension fund as many have exit charges and will need to seek advice if the pension is over a certain amount (£30,000).
However, consolidation can have the benefits of not having to pay multiple fees if you have different pension pots and in most cases have the option to have a personal pension in one scheme transfer into SIPPs or QROPs, International SIPPs, QUNPs for expats.
What are my options if I am under 55?
If you are under 55 cashing in your pension could be taxed at 50%. You can transfer but as explained before this can incur admin and exit fees. Please feel free to get in touch if you would like to know the process of transferring your pension.
If you are cashing your pension in or wanting flexible access to it, you need to make sure that you will have enough to sustain you for the years to come. I have heard many stories where pensions have been cashed in and then after a few years they have run out of pension and savings.
What are the options if your over 55?
If you are over, 55 you can take a 25% tax-free lump sum, when you withdraw and is commonly known as drawdown. This will keep the funds the same. You do have the option to take more but it will be taxed as income at your current tax band.
Also, you can purchase an annuity. An annuity can give you the option of an income for life. Read more on my guides of annuities.
Can I merge all my pensions into one pension plan?
Yes, you can as stated before you can merge all your pensions into one plan but would seek advice if you are looking to do about the advantages and disadvantages. There can be ‘hidden fees’ as such in the way of platform, advisor and fund fees. You want to make sure that your profits aren’t eaten by fees.
It also depends on what pension you have, very few will have a defined benefit (final salary) and these are tough to deal with because of regulations. This was due to advisors advising people to cash them in, transfer them, they get the commission and they are left in a dodgy fund with no pension. If you have a defined contribution, this is slightly easier because it is what you are contributing.
Can you reactivate your frozen pensions or get access?
You can only get access to your frozen pensions under extreme circumstances that being your terminal ill under 55. Over 55 you have the usual 25% tax free. This is the same for both define contribution and define benefit pensions.
Is my frozen pension safe?
Yes, if your previous employer remains in business they are safe if anything is to happen the pension protection fund scheme will come into rescue parts of the pension. I have seen this with a number of fallen companies in the U.K.
Also, it is worth noting that if were to die, most defined benefit pensions do not have a beneficiary attached although you will need to check with the pension provider. With defined benefit, it does vary on the scheme, some do have options where you can pass to your spouse in the event of death, however, I would say most don’t.
What should I transfer into?
This depends on your situation many opt for transferring into a SIPP or into one scheme. In all situations, I would speak to a professional first because pensions can become complex.
If you are unsure about a frozen pension and are living abroad and want to know more about your options get in touch at the link below. I can have a look at what it has done compared to its benchmark and put a suitable plan together for you.
