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Short-service pension refunds set to be banned

The Government is on the verge of banning short-service pension refunds amid concerns about the impact that master trust schemes could have on the success of automatic enrolment and Nest.

The Department for Work and Pensions has held a series of meetings with senior industry representatives as it weighs up the risks presented by the refunds to its pension reform agenda.

Officials are understood to be sympathetic to arguments in favour of banning short-service refunds altogether.

The DWP issued a call for evidence in January, closing on April 18, highlighting specific concerns about employers launching trust-based schemes in order to obtain contribution refunds.

Companies can get a refund on employer and employee contributions if a member leaves within two years of joining a pension scheme.

Hargreaves Lansdown head of pensions research Tom McPhail says: “The argu- ments in favour of these refunds are driven by the short-term vested interests of certain industry participants. If the Government does not ban them, it would be seen as a climbdown.

“At a policy level, these refunds are antithetical to what the Government is trying to achieve because it wants people to build up pension rights. But every time someone takes a refund, they go back down the snake to square one again. The minister does not want that, Nest does not want that and the automatic enrolment review team highlighted this as a problem too.”

Worldwide Financial Planning IFA Nick McBreen says: “In the spirit of auto-enrolment, to be able to wrap everything up and then, after two years, take a refund if an employee leaves is going against the grain of what the whole thing is trying to do. I am not at all surprised that the legislators are keen to remove the ability to do that.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. The arguments against these refunds are driven by the short-term vested interests of certain industry participants who would like nothing better than to see an acceleration of the shift from trust- to contract-based provision.

  2. Dennis Burling ACII APFS, Chartered Finalcial Plan 1st April 2011 at 10:37 am

    The only problem with this is that if it does go ahead, it will just add another reason for an employee not to want to join and opt out in the first place, so either way someone will object !

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