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Short service refunds

Important

Early draft of the code of practice

This code is not in force yet. It is an early version for the new code of practice consultation.

To give us feedback on issues such as the design, usability and navigation of this code, email us at webfeedback@tpr.gov.uk.

You can also read more information about the consultation.

Published: 17 March 2021

Individuals automatically enrolled into a pension scheme, who opt out within one month have their contributions returned, less tax. This is not a refund of contributions.

The rules of a DC scheme may permit a refund within 30 days of pensionable service starting. However, there is no statutory right to a refund of contributions where a member’s benefit is entirely DC. It is not possible to pay a refund once a DC member has 30 days pensionable service. The member will normally be entitled to preserved benefits or a transfer to another scheme on leaving service.SO1

Members of DB and hybrid schemes with less than two years’ service may have an entitlement to a refund of contributions. They may instead receive preserved benefits where, for example, allowed by the scheme rules or where the member has transferred benefits into the scheme.SO2

Any member with an entitlement to a preserved benefit in a scheme must receive a statement of their benefits when they leave service. See also Statutory financial statements (DC, DB or PSPS as appropriate).

Where a member has a right to a refund, the governing body must provide them with a written notice containing the information required by legislation.SO3

The governing body should provide this information within three months of the date the member left service. Governing bodies should advise members where it is likely to take more than three months to provide the information.

The governing body should give membersSO4 three months to reply and can, at their discretion or if a member asks, extend this deadline. Where the member does not respond the governing body may arrange to pay a refund after a further month.

A scheme member can inform the governing body of their choice in any way considered acceptable by the governing body, or set out in scheme rules or regulations.

The governing body should carry out the member’s wishes within three months of receiving them.SO5 The governing body can extend this period in exceptional circumstances.

The governing body should make payment of any refund requested directly to the member.

Leaving schemes that are being wound up

If an active member has between three months' and two years’ pensionable service and no vested rights when a scheme commences wind-up, they will only have an entitlement to a refund of their own contributions (if any).SO6 They will not have the option to take a cash transfer sum. The governing body should take steps to pay the refund within one month.

If a member leaves a scheme but wind-up starts after they have left, they still have the option to take a cash transfer sum. The transfer value may be reduced or increased in accordance with legislation (even after the member has replied to the governing body) before the transfer is made.

Glossary and legal references

Cash equivalent transfer value

The cash value of pension benefits, this value often fluctuates, is typically provided as at a certain date and can be guaranteed for a certain period.

Contribution

Money paid into the scheme. This may come from members in the form of regular or additional contributions, or from employers as regular or deficit related contributions.

Preserved benefits

Benefits held in the scheme for a beneficiary who is not currently in active service in relation to those benefits

Vested rights

Benefits that can be preserved in a pension scheme in the event of a member leaving active membership

SO1Section 101AA Pension Schemes Act 1993
[Section 97AA Pensions Schemes (Northern Ireland) Act 1993]

SO2Section 101AB Pension Schemes Act 1993
[Section 97AB Pensions Schemes (Northern Ireland) Act 1993]

SO3Section 101AC Pension Schemes Act 1993
[Section 97AC Pensions Schemes (Northern Ireland) Act 1993]

SO4Section 101AD Pension Schemes Act 1993
[Section 97AD Pensions Schemes (Northern Ireland) Act 1993]

SO5Section 101AG Pension Schemes Act 1993
[Section 97AG Pensions Schemes (Northern Ireland) Act 1993]

SO6Regulation 5 Occupational Pension Schemes (Winding up, etc.) Regulations 2005
[Regulation 5 Occupational Pension Schemes (Winding up, etc.) Regulations (Northern Ireland) 2005]