What to do with a ‘frozen’ pension

First published 04 January 2019 • Updated 18 December 2019

Let it go! Let it go! No – don’t ever let it go. If you have old pensions from previous employments, the last thing you should do is lose track of them. Is it time to bring them in from the cold? Article by Nick Green.

Frozen pensions

Do you have any frozen pensions? Maybe you’re not sure. The fact is, the answer depends on what you mean by ‘frozen’ - but you can save yourself a lot of stress and money in retirement by finding out now.

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What is a frozen pension?

‘Frozen pension’ is a term often used to describe a workplace pension from a previous employment, into which you no longer make contributions. They’re also (more accurately) known as preserved pensions, but when you hear someone talking about a ‘frozen pension’, this is usually what they mean. Think of it as being frozen like a tub of ice cream – to enjoy later.

But not exactly like a tub of ice cream?

No, because the pension isn’t technically frozen. Although you can no longer pay into it, the money in the fund will continue to grow and you will be able to access it as normal from the age of 55. The provider should continue to send you pension statements, but if you change address or if the provider changes, you may lose track of the pension and even forget it’s there.

What if I do lose track of a pension?

Around one in ten people have a pension from a previous employer that they’ve forgotten about or lost touch with. It’s vital to know about these, even if they’re small, as otherwise you won’t be able to work out your total pension savings or calculate your likely retirement income. You can track down any ‘lost’ pensions using the Pension Tracing Service (call 0845 6002 537). This service is provided by the government and is free – beware the many imitators who advertise under similar names, as they will charge and may also defraud you.

If I track down my old pensions, can I just leave them where they are?

You certainly can, and in some cases that may be the better option. However, don’t assume this. Your old pension may be in a fund that has higher administration charges and poorer performance than you could achieve elsewhere – in which case it may be better to transfer the money to your current workplace scheme or a personal pension. If you’re not sure, talk to a financial adviser (who can also handle all the necessary paperwork).

The government is currently looking into measures to have workplace pensions follow you automatically from job to job, so if this happens then things should become much simpler.

Should I consolidate my pensions?

Even if you know exactly where all your pension are and how much is in them, there is still the question of whether or not you should consolidate them all into one big pot. By doing so in advance of retirement you can avoid paying multiple management fees, and with a single pot it can be easier to manage your savings and simpler to choose your options at retirement.  However, you should check whether there are any termination penalties on the account, whether you will you miss out on loyalty bonuses, or whether the transfer will result in any other adverse consequences.

What about a final salary pension?

If your pension is defined benefit (i.e. a final or average salary pension) then it is almost always best to leave the pension where it is. You would lose out on guaranteed benefits by transferring out, and the transfer value is unlikely to match the amount of money you would have received by staying in. If you do want to transfer, then it is a legal requirement to take financial advice if your pot’s transfer value is £30,000 or more – however, advice is strongly recommended even below this value. If you stay in the final salary pension, your will start to receive your guaranteed income from the age specified in the scheme.

I read about something called ‘pension liberation’ or ‘pension unlocking’…

Avoid, avoid, avoid! This usually involves an offer to access a pension pot before you reach the age of 55. Given that this is illegal (other than in exceptional circumstances, such as early retirement due to ill health) you can instantly discount such offers as scams. You could end up losing most or even all of your pension pot, and you’d be breaking the law too.

But can I cash in a frozen pension?

Assuming you are over 55, and your frozen pension is defined contribution, you can access the pension pot in exactly the same way as any other pension. This may involve drawing out the whole sum as cash, if the pension is very small. Otherwise, you should seek advice on the best way to do this. Remember that drawing a pension counts as income, so if you cash in a large sum at once, you may lose a large amount in income tax.

If your pension is defined benefit, you will not be able to access it until your 'normal retirement age' as defined by that particular scheme. You may then, if you wish, be able to transfer it into a pension pot, or draw the guaranteed income as normal. Talk to a financial adviser about this.

How can I check the status of all my pensions?

To get a good idea of the total amount you’ve saved to date, and a useful estimate of how much all your pensions will be worth by the time you retire, you can arrange a free pension check from an adviser through unbiased.co.uk. Your adviser will be fully independent and regulated, and if you do decide to seek follow-up advice you’ll also receive a £50 discount from this adviser.

N.B. The other meaning

The term ‘frozen pension’ can also mean something quite different. UK pensioners who retire overseas in certain countries (including Canada, South Africa, Australia and New Zealand) have their UK state pension frozen at the level it was at when they left the country, which means the payments will not rise with the cost of living. If you think this may affect you, talk to a financial adviser.

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About the author
Nick Green
Nick Green
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.