Industry says hands off short-service refunds

Companies and groups have submitted a series of responses, including: recommendations for limiting the amount necessary for a transfer; reducing the period within which it can be claimed; and simplifying the rules to make transfers less costly for schemes.

The government has been consulting on steps needed to protect the efficacy of workplace pension legislation following the introduction of auto-enrolment, as well as preventing employers using short-service rules to escape administrative burdens.

Insurer Standard Life suggested a £1,000-£1,500 limit, below which a refund cannot be granted, or halving the two-year claim window, saying there was “little, but some evidence” for the government’s concerns.

“We are not seeing a huge raft of employers coming to us because of short-service refunds,” said Jamie Jenkins, head of employee wealth at Standard Life.

“That  said, there are some examples in the marketplace where that is being discussed.”

Short-service refunds should be retained, and the industry should encourage people to transfer pension schemes rather than taking a cash refund, he added.

Hymans Robertson also recommended retaining the system, but suggested a £1,000 limit and a one-year time period, in addition to simplifying the procedure for transferring accrued procedures.

The consultancy said short-term refunds were not a “major influence” on the type of scheme provided, with a “desire for good scheme governance” being more important to an employer’s choice to switch from contract-based to trust-based.

The National Association of Pension Funds said the call for evidence was wrongly directed, and it was wrong to “switch the rules around” before the impact of auto-enrolment is known, but there is scope for a wider consultation.

“The bigger issue is how we make transfers a lot easier; perhaps give trustees the power to make automatic transfers, if necessary, when pots are small,” said senior policy adviser Richard Wilson.

“We’ll be in favour of a properly thought-through review of the issues of transfers, refunds and small pots, but there is no urgency to do so.”

The Confederation of British Industry said its members were against the abolition of short-service refunds, and said the benefit to be gained through refunds would be outweighed by the cost of moving to trust-based schemes.

“They tend to be more expensive to set up and require more employer engagement to set up than a contract-based scheme,” said Mario Lopez Areu, a senior policy adviser.