Every month I host financial surgeries for corporate clients where I’m available for questions from their employees. Without fail, the most frequent question is regarding ‘paid up pensions’.
‘Paid up pensions’ is the term for pensions which are no longer receiving contributions. Many people refer to them as ‘frozen pensions’ – in fact they’re not frozen as the funds are still invested. The question is, what do you do with them?
For most people, these pensions are an untidy remnant of their job moves and changes in circumstances and have been accumulated over the years.
They can be pensions from previous employers or from a private pension which wasn’t needed when a new job came with a company pension. Sometimes a change in financial circumstances can put a stop to payments into a private pension pot - perhaps extended maternity leave or starting self-employment.
My first step in helping someone with their historic pensions is to ask ‘what do you know?’
Some people arrive at the surgery with a pile of paperwork, which makes it simpler to track down and sort out their pension collection.
For others, there can be a vague awareness of a pension but few details. It’s easy to forget pension providers when you move house. If you’re not paying into a pension, and statements arrive annually, they’re unlikely to be front of mind when you update companies with your new address. Hence the lack of paperwork.
If you think you have paid up pensions, I’d always recommend tracking them down and assessing them for two reasons:
- You need to know exactly what you have in order to plan
- The pension market has changed, particularly since 2000, and charges are now much lower. If you have an old pension, it’s likely to have annual charges that are not competitive in today’s pension market.
How to tackle your paid-up pensions
Step 1. The first step is to find them. If you have paperwork – great – go on to step 2. If there’s no paperwork, your first stop is the Pension Tracing Service.
You’ll need either an employer name or the name of the pension provider. The Pension Tracing Service won’t tell you if you have a pension, but will give you the contact details of the scheme so you can get in touch and ask them to search their records.
Step 2. Time to assess the scheme. The answers to the following questions will help determine what you do next.
- Was it a Personal or Occupational Pension? If it was the latter, was it a Final Salary or a Money Purchase scheme?
- What charges are being deducted?
- Are there penalties on transfer? The penalty and the size of the fund will influence your decision on whether it’s financially worthwhile transferring, if indeed that’s the preferred route.
- Does it have a Guaranteed Investment Return or Guaranteed Annuity Rates?
- What funds is it invested in?
This information will help an adviser recommend which of three potential routes to take:
1. Do nothing i.e. leave the pension funds exactly where they are
2. Consolidate the funds into a new or your existing ‘active’ pension
3. If you’re 55+, you can opt to draw it.
If you have more than one paid up pension, there may well be different advice for each one, depending on the factors mentioned.
The most important thing is to find them and tackle the tidy up.