1 November 2023
Confused about what to do when it comes to a frozen workplace pension?
In this handy guide, we will answer all your questions on frozen workplace pension pots. We will explain the rules of different pension contribution schemes and explain how to go about cashing pension plans from an old employer.
We will cover:
If you have a pension with an old employer you can access the money in it. It is your money to withdraw, and you can do so as long as you are 55.
Even if you have changed job and left the company, the money still belongs to you. You paid the contributions, so can withdraw the funds or transfer the money to a new pensions provider.
Transferring the funds is popular amongst those that are moving jobs to a company that has a different pension scheme.
One thing to be aware of is that if you are currently in a defined benefit scheme and choose to transfer, then you will lose the guaranteed pension that you had. Different pensions have different terms and conditions, so you would have to check with your old employer what transferring might mean for you.
Here is a useful video on transferring your pension.
Early pension withdrawal might be tempting if you are in debt and need cash now. However, you need to bear in mind the impact it might have on your retirement. This is why you should speak to a financial adviser.
Whilst the final decision is yours, an independent financial advisor can help explain the pros and cons to you. They can look at the rules set by your pension provider or pension scheme and see what the impacts of cashing in early would be.
The problem with cashing in early is that when you retire you might not have a sufficient and stable income. Defined benefit pensions, also known as final salary pensions, also benefit from inflation protection, so you might miss out there too.
Cashing in early can therefore impact the quality of life that you and your family have.
Whether early pension withdrawal is right for you depends on so many different things, such as your financial circumstances, the type of scheme, and your age. There are guides online, but the fact is an expert can tailor the advice to you.
You have more freedom than ever to access your pension. You can access your pension pot from age 55. You can often do this even if you keep working for your employer.
You can get the entirety of your pension pot as a one-off lump sum (although tax might be payable) if you decide that cashing a pension in early is the best option for you. You are free to spend the one-off lump sum you receive from cashing in your pension however you wish. For example, you could:
More and more people are deciding that cashing in pensions is a good choice. Most withdrawn defined contribution pensions are worth less than £30,000. More than half of pension pots accessed for the first time were cashed in completely in 2019, according to the Financial Conduct Authority.
Cashing in your pension, however, might not be the best option given your personal circumstances. There are several disadvantages to consider.
It is highly recommended that you seek professional, independent financial guidance before cashing in pension pots.
It is especially important to consider the effect that taking cash from your pension has on your nominated beneficiaries.
Remember, they may also need to pay Inheritance Tax on cash from pension pots as they can be considered as part of your estate.
Quite a few defined contribution pension providers offer the option to take your whole pension as a one-off lump sum cash payment, rather than getting it in instalments, using something like a drawdown facility.
In these instances any tax owed is deducted by the pension provider before they make the pay out. The first 25% is tax-free and the other 75% is taxed at your marginal rate (check your policy details and tax code for this).
To lower your rate of tax it can be good to release money over the course of many tax years. However, if you need a lump sum the scheme administrators can explain how your cash lump-sum will be taxed.
Simply contact your employer, scheme administrator or pension providers and ask if you can make a withdrawal of cash. They can then advise you of the process.
You can take out all the money as a cash sum if you wish. It takes about five weeks for payments to arrive. If you need the money for something specific be sure to request it in advance.
On the government advice page you can read more about taking money from pensions and your options.
It is also very important to contact someone with experience and support, such as a pension adviser. They will help you understand every option, and ensure you minimise any risk there might be.
Normally, it is illegal to take money out of your pension pot if you are under the age of 55.
However, if you are seriously ill and are unable to work you might be exempt from this rule. Speak with your pension provider to clarify what counts as ‘ill health’.
Each pension plan has different rules for this, so seek financial advice from a pension advice company before cashing in.
In short, no. In doing so you would be breaking the law and will face large fines and fees.
HMRC charge a 55% tax penalty on the entire pension pot, not just the money withdrawn. The tax penalty could leave little to no future retirement savings for you to live off. Your loved ones can lose out financially, too.
“Pension liberation” scammers are people who claim you can get access to the value of your workplace pensions before age 55. However, this is still illegal.
People over age 55 should be wary of pension scammers too. Types of signs of a scam include unsolicited emails, cold callers, and returns on investments that sound too good to be true.
You can withdraw money from a private pension, but similar rules apply:
The government Pension Tracing Service is free and can be very helpful if you are unsure about old frozen pensions. It helps with tracking down lost pension schemes.
The government Pension Tracing Service will find out which workplace pension scheme your old employers used. They give you the pension provider name and then you can then contact the administrators. They will tell you whether you were a member and if you have benefits to access.
You will need to provide the names of old companies you worked for so that they can investigate your case.
It is a good idea to start your search before you need the money. This is because it is a lengthy process to get free tracing.
Also, watch out for scammers using similar business names to defraud pensioners. The government scheme is free, so anyone trying to charge is likely a fraudster.
To avoid scams, make sure you use the official government phone number and speak to someone reputable.
No. In the UK, you can carry on working while taking cash for pension, and you can work past retirement age. You can keep making pension contributions while working and simultaneously withdrawing pension money.
The benefit of this is that you can keep topping up your pot for future retirement income, and access extra cash if you need it.
A frozen pension is a workplace pension scheme from a company that you no longer work for. You no longer make contributions to a frozen pension from an old employer.
As soon as you reach the age of 55, you can access the money from your frozen workplace pension.
Many people decide to transfer their pension plans and pool pots together. You must check if this is allowed given the rules of your pension provider. Public sector schemes may not always allow this.
There are a few things to check before making transfers:
A pension specialist can explain your options in accordance with your goals and give you as much money advice as you need. Contact an advisor if you are unsure about the benefit entitlements of your workplace scheme, or have another question.
In most cases, Yes. If your old employer goes out of business, employees should still be protected as benefits are simply set aside. Once you turn 55 you gain control of the funds from your old pension.
There are two main ways people use the money from an old defined contribution pension:
If you are transferring your plan there is normally a termination charge.
You can read about pension rights on this government advice page. If you want more tailored information, speak to an adviser.
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