Citing potential threats to the yet to be introduced auto-enrolment regime, the Department of Works and Pensions (DWP) has announced today plans to change rules around short service refunds from pension funds shortly.
The DWP said in a statement yesterday that savers are often left out of pocket since these refunds mean people leaving their job within two years get a default return on their pension contributions.
Since the auto-enrolment proposal is due to be rolled out soon, the review of refunds was necessitated by the Call for Evidence on the regulatory discrepancies between workplace and occupational pension schemes.
In response to the consultation, many stressed that changes to short-service returns should not be initiated without giving due consideration to “how small pension pots and transfers should be treated after automatic enrolment”, which “made clear the complexity of the issues” involved, the statement said.
“Automatic enrolment at its core is about getting people to save for their retirement. With just over half of working people changing jobs within two years, the use of these refunds pose a significant threat to what we are doing”, said minister for pensions Steve Webb.
“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”, said Webb.
“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”, he added.