"Frozen" - don't let your retirement be wintery.

The children's snowman based on the film "Frozen"

The several inches of snow that fell after Christmas, were just what the children wanted, "now its really winter", said my son.   After tiring themselves out  sledging,  they turned their creative talents to making a snowman, just like the one from the film  Frozen.    As the snow fell, the word "Frozen" gave me inspiration for my latest,  perhaps seasonal blog.

Just what does the term Frozen mean when mentioned in the same sentence as pensions.

You most  often hear the phrase, Frozen Pension, applied to pensions that are left behind with an employer after ceasing employment.  The state pension can also be frozen, depending on where in the world you decide to retire.  The Pensions Regulator can also issue a pensions freezing order where they feel  a scheme needs investigating.  This can be where malpractice is suspected or more commonly,  where an employer has got into financial difficulties and the members benefits within the pension scheme need protecting.

There are two main types of occupational schemes, those that provide defined benefits  at a set retirement age based on salary and years of service and those  that provide  uncertain benefits at retirement based on the level of monetary contributions, the investment growth on the contributions.  The later are often referred to as money purchase schemes but the benefits can still grow dependant upon the underlying investment but its worth checking on the type of investments and their performance.

So is it helpful to use the term Frozen when talking about occupational pension schemes?  It  implies a lack of movement, a lack of growth and this is not necessarily the reality.  It could be that the only frozen factor is the salary at the time of leaving.  There could be some valuable guarantees in place for future pension benefits and the pension scheme rules may dictate that benefits have to be revalued each year to keep pace with inflation.  In the case of local authority schemes it  may be possible to return to employment,  pick up contributions and build upon the years of service already earned.  Instead of referring to frozen pensions would it be more helpful to use the term Deferred Benefits?

From where I'm sitting,  the biggest pensions freeze is the lack of engagement I see in people when it comes to pensions and planning a retirement income.   This is hardly surprising given the overly complex way benefit statements are provided.  Some employers do help but the majority do not meet with member's of their pension scheme to explain how their pension benefits are accumulating, relying instead, on the information dump contained in an A4 envelope.

Combined with their free lunch attitude to charges and commissions, the situation is perhaps more exasperating when it comes to  pensions historically provided by banks and insurance companies.   The annual benefit statements might as well be written in a foreign  script.  They have limited appeal for anyone who's first language is common sense.   Those annual benefit statements  just end up destined for the drawer or shredded.

As we approach the new world of pension freedoms in the UK,  it's going to be vital to understand your pension benefits;  what you have, why you have them, whether they are going to provide enough, what the underlying investment performance is, how this fits in with your plans, what charges you are paying and to whom, whether you are claiming all the tax relief you can.

The world of pensions is changing fast, please don't apply your own freeze on pensions.  To echo my son's words in the opening paragraph, don't let your retirement be like a real winter.    We are here to help you trace old pension schemes, understand what you have and work with you to build your future wealth.

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