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DWP to change short-service refund rules

The Government will amend short-service refund rules as part of wider reforms to the treatment of small pension pots.

In its official response to the call for evidence on the regulatory differences between occupational and workplace pensions, the DWP says it is “not convinced” by arguments to maintain the current short-service refund regulations.

Under current rules, companies can get a refund on employer and employee contributions if a member leaves within two years of joining a pension scheme.

However, the Government says any reforms would be considered as part of a wider debate about how to treat small pension pots after automatic enrolment.

The response says: “Our primary objective has to be to help more people save for their retirement. We are not convinced by any of the arguments put forward to suggest existing short-service refund rules support that objective.

“Respondents to the consultation have argued strongly that rules around short-service refunds should be considered as part of the wider question about how to treat small pension pots after automatic enrolment, and how individuals can get the most out of their pension savings.

“We agree.”

Pensions minister Steve Webb (pictured) encouraged employers not to choose a pension scheme on the basis that short-service refund rules will remain unchanged.

He says: “We will announce a full set of proposals in the Autumn, outlining proposed changes to short-service refunds, together with potential ways to manage the burden of small pension pots after automatic enrolment.

“In the meantime I would encourage employers not to make their decision about scheme type on the assumption that short-service rules will continue to exist in their current form going forward.”

Government officials will consider a range of solutions to deal with small pots, including moving small pots into Nest and introducing an automated transfer system.

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