It is not uncommon for UK expatriates to see adverts telling them to “unfreeze” their UK pension. However, what does this mean and do you actually have a “frozen” pension?
A frozen UK pension is usually referring to a pension with a former employer where no further contributions are being paid into it. Whilst people may refer to their old workplace pension as “frozen”, this is not really the case. It is better to think of the pension as “deferred” or “paid-up” as calling it frozen infers that it can no longer grow, which is generally not the case.
If you left behind a UK defined contribution pension, this pension is typically invested and its value will fluctuate depending upon investment performance. You should receive an annual statement from your pension provider confirming the pension fund value and investment performance. If, on the other hand, you left behind a UK defined benefit pension (final salary pension), this again is not frozen as the benefits accrued typically increase each year from the date you left employment until your retirement. Increases are commonly by a rate of inflation and although there may be caps on growth, such pensions are not frozen.
If you have a deferred or paid up UK pension, it is important to keep it under review, understand what benefits it provides and what options will be available to you to draw from the pension at retirement. In some circumstances it can be beneficial to consider transferring old workplace pensions to a more flexible UK pension like a SIPP. However, this depends on the characteristics of the old workplace pension plan and a person’s retirement objectives.
Point to note: Rather confusingly, the term “frozen pension” can also refer to what happens to a person’s UK State Pension when they move abroad. UK expatriate pensioners living in one of 150 countries (including Canada, Australia, New Zealand and South Africa) have their UK State Pension frozen at the level it was when they moved abroad. This differs to UK expatriates living in countries like the United States where the UK has as a social security agreement in place that allows for cost of living increases to the State Pension to be paid.