What can I do if my pensions are frozen?
Frozen pensions are saving pots you no longer contribute to. Hence, they easily get forgotten and you could be losing track of your hard-earned cash.
The quick and easy guide to frozen pensions
The term frozen pension all sounds a bit scary and mysterious. The reality is much more simple. But once your pension has been frozen it is likely to be preventing you maximising your future financial and retirement plans - so the sooner you can get things back on track the better. The Portafina guide helps you navigate your way.
The headline facts at a glance
There are 2 types of frozen pension: a frozen State pension and a frozen company pension. Both come about in unique ways and consequently have different solutions. If your company pension is frozen it is likely it came about through a change in career – if your State pension is frozen it will be down to the fact that you have relocated outside of the UK. However, the good news is unfreezing your fund is quite straight forward.
What is a frozen pension?
It is a bit of a myth that your pension becomes frozen by some outside force. Let’s look at each type of pension separately:
This becomes frozen when you decide to refrain from making any further contributions to it but the investment remains intact. If you did not cash it in* or transfer it, your savings remains the same as the day you left your job. The only growth will be in the fund you have already created.
3 reasons freezing happens:
- You change your job (or leave work) but do not cash in* or transfer your company pension to a new scheme.
- You decide to opt out of your company pension because you do not feel it is performing well or the features do not match your own aspirations.
- You opt out of a NEST pension. NEST funds are the basic pension schemes used by employers to ease the new auto-enrolment system.
Your UK state pension is termed frozen when you are accessing it when living abroad. The UK State pension is index - linked and is therefore designed to rise with the cost of living in the UK, but this benefit would be unavailable if you are an ex-pat. The rate of your State Pension will be set as soon as you set foot in your new home country and remain at that rate.
Is there a way to recieve increases to my state pension while living abroad?
There are 4 ways in which you can receive the State Pension. By:
- Living in the UK 6 months of the year or more
- Living in the European Economic Union (EEA) – note this could be subject to change with the current Brexit negotiations
- Living in Switzerland
- Living in a country that has a social security agreement with the UK that allows for increases.
Should I be concerned about a frozen company pension?
Defined contribution scheme (DC)
Your frozen company pension contains savings you have made for your retirement. You will want this money to grow to your best advantage. However, you (and your employer) are not contributing to it and so only the savings you made before the fund was frozen will be invested and so growth may be limited.
Also, during the time that a pension is frozen it is easy for it to become forgotten. In which case, it is likely you will not be getting your savings professionally reviewed in order to check out its performance. Hence you cannot react to problems when growth is not as good as it could be (pension switch). In the same way, if it is doing well, you may be missing out on contributing to a really great scheme.
Final salary scheme
The size of the return from a defined benefit scheme is dependent on the amount of years working at the company and your final salary - rather than the performance of the investment. Therefore, with a frozen pension, the amount you receive on retirement is calculated basically by multiplying your last salary by your total years of service before leaving the job. The only way to increase this guaranteed amount is by resuming work and opting back into the scheme. However just like the defined contribution scheme, it would still be highly beneficial to have access to it in order to compare growth and features with other schemes on the market or just to factor it into your retirement plans.
What is the best way to deal with a frozen company pension?
There are many options open to you. There is no red tape. It is your money and your scheme. You could, if the provider offers the facility, re-start contributing to it; you could transfer the savings you already have to a different pension scheme; if you have more than one frozen pension you could consider consolidating all of your savings into one superior pension plan.
In order to take the most appropriate action we recommend getting your pension reviewed as soon as possible. You need to assess the current value of the plan relative to the features and returns available on today’s open market and what your current needs are. Your pension provider can give you an up to date value of your scheme but a financial adviser may be useful to help you decide which is the best way to move forward.
At Portafina, we offer a no obligation pension review. What this means is that we will gather all the information required and provide you with all of the options available to you along with our recommendation. Throughout our assessment, we will keep your unique needs and aspirations for the future at the heart of our assessment.
Request your free information guide
- A deliciously quick overview of what types of pension you might have
- The reasons why a transfer could be right for you
- Industry phrases and what they mean
- How our approach is different to most, if not all, financial advisers
Hopefully the information in this guide has given you a clear idea about how frozen pensions can come about, how they can affect your future pension plans and how you can best move forward. Below are three of our most frequently asked questions. If you cannot find what you are looking for here please do not hesitate to give us a call.
How do I track pensions which may be frozen?
The government provides an online tracking service which you can access by clicking here. All you need to start the process is the name of any previous employers or the names of the actual pension which was set up. However, if you find this process a little daunting, if online services are not for you, or if you want to find out more about the value of your pension and future options across the market we can do the tracking for you. For a friendly chat call us on 0800 304 7600.
Will auto-enrolment affect whether my company becomes frozen?
No. The new government initiative of auto-enrolment is designed to encourage everyone to prepare for their retirement at least through a company pension. You still have the option to opt out at any time and if you do so your fund would become frozen.
Can I transfer out of a NEST pension?
Yes you can. The NEST pension scheme, which is the ease of use system for auto-enrolment can be transferred just as easily as any other defined contribution company pension. So if you feel unhappy with the performance or the features of the scheme, or you have already stopped contributing, it is recommended you speak to a financial adviser who can support you in transferring your money to a more appropriate pension fund.
Call 0800 304 7600 for a friendly chat about your pension
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