Press release

Further boost to workplace pension saving with abolition of 'short service refunds' from next year

We are ending the practice of workers who leave an employer after less than 2 years' service having to withdraw their pension contributions.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

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With more than 4.7 million people now automatically enrolled into workplace pension schemes, the change represents a further measure to boost pension saving and make sure today’s workers can look forward to comfort and prosperity in retirement.

The move also lays the ground for wider government plans to make workplace pension saving easier by introducing automatic transfer arrangements for people who change employer during the course of their career.

The government intends to bring in in the new measure from October 2015.

Pensions Minister, Steve Webb MP, said:

The days of people spending their entire career with one employer are largely over. Today, the average Briton has 11 different jobs in their lifetime and we need the rules to reflect this reality.

If people change jobs regularly and ‘cash out’ their pension each time, they stand no chance of building up a decent pension pot. By abolishing short service refunds and developing plans for automatic transfers to help people keep track of their savings, this government will build on its excellent record of helping millions of people save more for a brighter, more comfortable retirement.

Under current arrangements, a member of an occupational pension scheme who leaves having completed more than 3 months but less than 2 years’ qualifying service may be entitled to receive a short service refund. Sometimes this is optional while in other cases an employer may insist on the refund being taken or a transfer being made to another scheme.

Money purchase occupational pension schemes currently make around 20,000 short service refunds every year, a figure which was forecast to grow with the continuing roll-out of automatic enrolment.

But this new government action will put a stop to these refunds, ensuring money saved into a pension scheme stays there and is invested for its intended purpose – adding to the saver’s overall pension pot.

The government intends that, from October 2015, schemes will only be able to make refunds within the first 30 days of membership. Defined benefit occupational pension schemes and personal pension schemes are not affected.

More information

The government made provision for the abolition of short service refunds in section 36 of the Pensions Act 2014. This amends section 71 of the Pension Schemes Act 1993.

The government now aims to make a commencement order to bring the change into force from October 2015.

Pension schemes will still be able to offer those who have joined through their contract of employment to receive a refund of their contributions if they leave within the first month. This means there will be broad parity between these ‘contract joiners’ and those automatically enrolled into occupational pensions.

Defined benefit occupational schemes will retain the facility to make short service refunds as these will not be within the scope of automatic transfers. Personal pension schemes are not affected by this policy as they have never had the facility to make short service refunds.

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Published 22 October 2014