Frozen pension is a popular topic when it comes to pension plans. This is especially true for British working citizens who decide to work or live in another country. However, there’s a huge misconception about this type of pension. Funds from a former employer aren’t considered as frozen pensions, so to speak.
Defined Contribution
The term “frozen pension” is typically used when a policy holder can no longer make any future payments for the pension plan he has in his previous workplace. The term isn’t 100% accurate because the benefits from the old pension plan aren’t actually frozen. It will depend on the policy holder’s previous pension plan, but the funds from the plan can still be used for an investment. This plan is known as “defined contribution.”
Defined Benefit
Another pension plan that people mistakenly refer to as a frozen pension is the “defined benefit.” This is also known as the final salary pension plan. Like the defined contribution, this plan isn’t really frozen. This is because the benefits that the policy holder accumulated increases every year. This starts from the time the holder left his old workplace up until he reaches his retirement age.
Transferring Frozen Pensions
In a few particular situations, a policy holder can transfer his old company pension into another plan. The transfer will provide freedom to move the funds into a plan where the policy holder can continue paying for it. It can also mean gaining more control over the funds.
Is transferring a frozen pension advisable? Experts say that it is doable but it needs careful and extensive consideration. But whatever the policy holder decides, it’s important to keep all documents related to pension plans safe and handy. This way, it’ll be easier to contact pension managers or fund trustees when the need to request for the funds to be released arises.