What is a Frozen Pension?

If you have pension funds from a previous employer some people mistakenly call this a frozen pension.

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.

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.

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 us.