Frozen pensions

Many people have enrolled into pension schemes in previous job roles, but have forgotten to combine the funds when switching employer (or didn’t realise they needed to).

These inactive pensions are often dubbed “frozen pensions”, but they’re more accurately referred to as dormant pensions or preserved pensions.

The good news is that the advisors we work with are experts when it comes to dormant pensions and can offer you the right advice.

Read on for a comprehensive guide on the key information you need to know about “frozen” or dormant workplace pensions, including how they work, the rules around accessing your funds and the associated charges.

Frozen pension definition

How do they work?

Although you can no longer make contributions to these funds, the money in these schemes will continue to grow – this is why the term “frozen pension” isn’t strictly accurate. What’s more, you should continue to receive pension statements in the post.

Problems usually tend to arise if you change address or the provider changes. If this sounds familiar, it’s important to take action. Even if the funds are small. Without them you won’t be able to accurately calculate your retirement income.

Not only will this give you peace of mind, you’ll also benefit from full visibility over all your savings and how they’re performing, and be aware of exactly what fees you’ll incur, and why – more on that later.

How do I find dormant pension pots?

If you don’t have all of your previous records to hand or have simply forgotten some of the details, there are a couple of ways in which you can locate previous providers to access your dormant pensions.

You could get in touch with the HR department at your previous place(s) of work, and they should be able to give you details of the company plan. From there, it will be down to you to contact the pension provider and complete the process.

If you have multiple dormant pensions, it may save you time and effort to use the government’s Pension Tracing Service. This free database lets you input the names of your former employers or pension providers, and generates the required information for you.

Do they earn interest?

Yes, although you are no longer able to contribute to a dormant pension, the funds in any dormant pension schemes may continue to grow over time (although they can shrink), and you will be able to access it as normal provided you’re over the age of 55.

Frozen overseas pensions

If you’re a UK pensioner who has retired overseas in particular countries (including Australia, Canada, South Africa and New Zealand) your UK state pension will literally be frozen at the level it was when you left the country, meaning payments will not rise in line with the cost of living.

If you’re in this situation, contact us to be referred to a specialist advisor.

What charges will I have to pay?

The most common costs associated with dormant pensions are pension transfer charges. If, like many, you decide to consolidate your funds into one pot, you may be required to pay an exit fee to the dormant pension provider.

The exit fee will be deducted from the balance of your pension. Sometimes this is a flat fee, but in many cases it tends to be taken as a percentage of the fund – so the bigger your pot, the more it could potentially cost to transfer.

Before you go ahead and transfer your dormant pension pots(s), be sure to investigate exactly how much you’ll be charged and be aware of any restrictions. For especially large pots, for example, the funds may be higher than your transfer value – in which case you should speak to an advisor.

In some cases, especially for older pension schemes, you may have incurred charges as soon as you stopped making contributions to the pot. If you have a “with-profits policy” or previously invested in “with-profits funds”, you may also be subject to extra charges.

As always, the charges you’ll be subject to will vary considerably, both by provider and scheme. This is why it’s so important to seek expert advice, and find out how these fees are likely to impact your short- and long-term financial future.

Can you unlock a “frozen pension”?

If you’re aged 55 or over, and the scheme is a defined contribution, certainly you can cash in your dormant pension.

You can access your “frozen” pension pots in the same way as you would any other pension; usually, you take out up to 25% tax-free, and any other withdrawals will be classed as taxable income. The exception is if the sum is very small, in which case you may be able to withdraw the full amount.

If your pension is a defined benefit scheme, you will not be able to access it until your normal retirement age, as outlined by the scheme. You may then be able to transfer it into another pension pot if you wish, or withdraw the guaranteed income.

At this point, it’s important to note that unlocking a “frozen” pension can also refer to a “scheme” to access a pension pot before you reach the age of 55 – this is also known as “pension liberation”.

Unless you have exceptional circumstances, most experts would recommend avoiding this at all costs. These schemes are most likely to be a scam, and “pension unlocking” (even if it is “frozen”) is illegal if you’re under the age of 55. Get in touch if you’re uncertain.

“Frozen” Civil Service pensions

As mentioned, the rules and charges associated with withdrawing and transferring dormant pension funds vary from provider to provider, and scheme to scheme. There are also different processes associated with “frozen” Civil Service pensions.

If you’ve left the Civil Service and have not yet claimed your pension, you are classed as a deferred member. To access your funds you will need to request to claim your deferred member retirement application from the Civil Service Pensions.

Civil Service Pensions will then check the information supplied by your current employer, and send you a pension option and claim form to complete and return.

If your completed forms are returned at least one month before your retirement date, your lump sum (if applicable) should be paid shortly before you retire. Your pension will commence a month after your retirement date, and paid monthly in arrears.

Talk to an expert

If you think you’ve got one or multiple “frozen” or dormant pension plans out there and want some advice on the next steps to take, contact us on 0808 189 0463 or make an enquiry.