The DWP have announced the end of the practice of workers who leave an employer after less than 2 years' service having to withdraw their pension contributions.
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.
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