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What Is A Frozen Pension?

Do You Have a Deferred Pension from a Previous Employer?

If you have a pension plan from a previous employer locked away, you could release the funds and put them to better use.

Very few of us start working for a company after leaving school and stay there till we retire these days. This means we can end up accumulating small pension pots from different employers over the years that become “frozen” when we leave the employer.

A frozen pension is so described because it essentially becomes frozen in time at the moment we leave the company – we cannot make further contributions, and neither can our new employer. However, you are not as helpless as you might think.

If you have one or more frozen pensions, they have probably been locked away for some time. But times have changed in the pensions landscape, and reforms launched in 2015 mean that you could release your frozen pension and put the funds to better use, or reinvest them in a way that will generate superior returns.

Final salary schemes

There is another type of pension scheme that some people mistakenly call a frozen pension, and this is a final salary scheme (sometimes referred to as a defined benefit pension).

Strictly speaking, this is not really frozen as the benefits you have built up over the years will continue to grow at, or sometimes even ahead of, the rate of inflation. The question is, however, whether you could make that money work even harder for you somewhere else.

Pension review

Intuitively, having different pots of money in different pension funds, all performing in different ways, does not sound like the most effective way of managing your money and planning for wealth and prosperity in retirement. This is why it is so important to arrange a free pension review sooner rather than later, to make sure you are making the best possible use of your money.

Pension release

In many cases, it makes the most sense to cash in your frozen pension and reinvest the money in a way that will generate better returns.

If you are on a new scheme with your current employer, and are confident that this will, in itself, provide sufficient income to meet your everyday living requirements on retirement, then you might also consider using the money from your frozen pension in a different way entirely, for example to pay off debts, fund the kids’ education or pay for that long overdue holiday.

Making smart use of your money

It is a well-known fact that today’s pension funds are in big trouble, and barely a day goes by without news of another high-profile company announcing a multimillion pound deficit.

In these turbulent times, it is important that you get on the front foot and proactively manage your money. There is more flexibility than ever, but only for those who are prepared to do something about it.

Many of us all but forget about our frozen pensions, and hardly even look at the annual statements that come through the letter box. Take control of your pension plans today, for a happy and affluent retirement tomorrow.