The Pensions Regulator

Code of practice 04
Early leavers

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The requirement to notify early leavers of their rights

9. When a member of an occupational pension scheme leaves pensionable service after three months and with less than two years' pensionable service and without vested rights to benefit under the scheme rules, they must be notified of their statutory rights to take a cash transfer sum or a contribution refund.⁶
10. Those rights are to take either a cash transfer sum, calculated in the same way as a cash equivalent transfer value, or a refund of their own contributions, if any (less tax and any contributions equivalent premium ⁷ paid as appropriate). These may be reduced or increased where permitted/required by legislation, eg if the scheme is underfunded.
11. The three-month condition is satisfied if pensionable service under that scheme, taken together with:
    • any previous period of pensionable service under the scheme; and
    • any period of employment in linked qualifying service ⁸ under another scheme

    amounts to at least three months.⁹

12. Within a reasonable period of a member leaving service as above, trustees of the scheme must provide them with a written notice ¹⁰ giving adequate information to explain:
13. • the nature of the right acquired to a cash transfer sum or a contribution refund under the legislation;¹¹
    • the amount of both the cash transfer sum and contribution refund;
    • how and by when they may exercise the right; and
    • such other information as may be prescribed.
14. The Regulator expects that notices will be provided to a member as soon as reasonably possible and that this should normally be within three months of the member leaving pensionable service.
15. The Regulator would have no concerns if a member were notified of their rights well within this period.

    If schemes are contracted out of the State Second Pension (S2P) ¹² and there is the possibility of the payment of contributions equivalent premiums to the state, trustees may need to ensure that any affected member is notified within a shorter period in order to ensure that the payment can be made in time (see paragraph 31 on contracting-out).

16. If the trustees are aware that it will take longer than three months to notify any member they should, as a matter of good practice, keep them informed of the situation, and notify them of their rights in full as soon as possible.

6 Chapter 5 of Part IV of the Pension Schemes Act 1993 (PSA 93), inserted by Section 264 of the Pensions Act 2004.
7 Contributions equivalent premium is the premium paid by the scheme managers/trustees in cases where a leaver has less than 2 years pensionable service and is not entitled to any benefits from a Contracted-out salary related scheme, but has rights in the state scheme that can be restored.
8 Linked qualifying service' means actual service in a previous scheme which gives rise to a transfer credit, which ranks as qualifying service (section 179 of PSA 93). Only service which has been transferred into another scheme, and which gives rise to benefits under that scheme, can be linked qualifying service.
9 Section 101AA(2) of PSA 93
10 Section 101AC(2) of PSA 93
11 Section 101AB of PSA 93
12 State Second Pension (or S2P) is an amount of pension provided by the State that is additional to the basic state pension. If members of a scheme are contracted-out of S2P then they pay lower NI contributions (and so does the employer) They may still be entitled to some rights to S2P, depending on the level of earnings.

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