Cash in or transfer your frozen pension

Frozen Pension

If you are aged 55+ and have a frozen pension (also know as a deferred pension) you are not currently paying into or receiving you can cash in 100% of your frozen pension as a lump sum – up to 25% Tax Free.

Frozen Pension

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. It’s just your payments into the pension that are frozen.

What happens with a frozen final salary / defined benefit pension?

The other type of pension scheme people sometimes call frozen pension is a Final Salary (also known as 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.

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.

What happens with a frozen defined contribution pension?

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.

Can I transfer a frozen pension?

The new Pension Freedom rules give you lots more flexibility and options on what you can do with your old frozen pension. If you have an old frozen pension you can transfer the pension(s) to a new scheme.

  • Transfer your frozen pension to a UK approved pension contract,  giving you greater control over the money in your pension. This allows you to access your pension fund when you need it, similar to using a bank savings account
  • Transfer your frozen pension to a scheme that will pass 100% of your fund to your beneficiaries in the event of your death. Death Benefits are paid free of tax if you die before 75; death after 75 is taxed at the beneficiary’s marginal rate.
  • Take a cash lump sum to provide cash now. Up to 25% of your pension fund can be released tax free, the rest is taxed at your marginal tax rate applicable at the time you take it, which could change in the future.

Can I cash in a frozen pension?

The new Pension Freedom rules allow you to take 100% of your pension as a cash lump sum – up to 25% Tax Free*. You must be 55 or over, with a pension you are not paying into or receiving. It doesn’t matter if you are still working or in full time employment.

However, cashing in your pension early this is only suitable of a very limited number of people and circumstances. The Financial Conduct Authority (FCA) has very strict rules and regulations when it comes to cashing in Defined Contribution (DC) & Defined Benefits (DB) Pensions because cashing in your pension early will almost certainly reduce your pension income in retirement.

It is vital that you take professional advice on the options available to you and understand the implication to your tax position, your death benefits and future retirement income when cashing in a frozen pension. If you would like to find out more why not Get Started Today and receive our free Information Pack on cashing in your frozen pension at 55+.

Pension Transfer Consultation

Get Started Today

Free Pension Transfer Guide & Consultation
If you would like to find out if transferring your pension or taking a cash lump sum is suitable for you, we can provide a free initial Pension Transfer Consultation known as abridged advice.

Simply complete your details below, and we will send you our Pension Transfer Consultation Pack and Enquiry Form.

As part of the consultation we will look at:

  • What existing pension plans you have in place.
  • What your plans are for retirement.
  • Your needs for flexibility and control.
  • The likely cost of more in-depth advice.

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Defined Benefit Pension Transfer Warning

Transferring away from a defined benefit pension scheme means you will lose valuable guarantees.

Taking benefits early will almost certainly reduce your pension income in retirement and is only suitable for a limited number of people and circumstances. This should not be seen as an easy option for raising cash.

If you release all your money from your pension early you will not have anything left to provide you with income in retirement.

When releasing cash from your pension, usually up to 25% is tax free, the balance is taxed at your marginal rate at the time and could change in the future.

Watch the FCA video explaining the expectations of financial advisers when advising you on defined benefit pension transfers.

Grove Pension Solutions Ltd is authorised and regulated by the Financial Conduct Authority (Reference number 465051).

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