Leave the pension with your ex-employer

Preserved or Frozen Pension

Once an employee has left their employer they cease to be an active member of the company pension scheme.

Typically, if you have been in a company scheme for more than two years you will be left with a "preserved" or "frozen" pension that will be looked after by the company pensions department until retirement age.

Increasing Pension

Although the term "Frozen" is commonly used it is somewhat misleading as the pension will normally increase or revalue, as its correctly known, between the date you left and your retirement (this period is known as the deferred or preserved period).

If you left a final salary company pension scheme after 31/12/1990 the law dictates that the pension scheme must increase it during this preserved period by "Statutory Orders". This basically means that the pension grows by the increase measured by the governments Retail Price Index (R.P.I.) with a maximum upper limit of 5%.

Some schemes, usually only the Public Sector (NHS, County Council), will be more generous than they are required to be by law and allow the members pension to increase in deferment at the same rate as the R.P.I. without imposing an upper limit of 5%. This is clearly very generous and is often useful in times of high inflation when interest rates are usually high.

Increasing Pension - Guaranteed Minimum Pension

The vast majority of final salary company pension schemes are "Contracted-Out". Essentially, this means that the pension scheme has decided to take responsibility for your Guaranteed Minimum Pension (G.M.P.), which represents part of your state pension.

In most cases a portion of an employees final salary pension will include a G.M.P. element and the law also dictates how this must increase. The government allow pension schemes to revalue the G.M.P. in one of three ways during deferment, the most commonly used method is the fixed rate. The scheme has to increase the Guaranteed Minimum Pension for each year before you retire, it has a bearing when you left the scheme as legislation confirms what rate of increase to use. For example: someone who left their scheme on 01/06/1987 the G.M.P. must increase by 8.5%, someone who has left more recently on 01/05/1999 the G.M.P. will increase at 6.25%. The government assess which rate to use every few years and from time to time it will be amended to reflect the current and short-term future economic conditions.