Some of you will have seen my recent post on this subject. For those that have not, the link is https://www.jelfgroup.com/blog/2011/01/refund-of-pension-contributions/

The DWP have now put out a formal ‘call for evidence’ entitled: ‘Preparing for Automatic Enrolment: Regulatory differences between occupational and workplace personal pensions’. This call for evidence runs until the 18th April (by which time responses must be received).

The link to this document is: https://www.dwp.gov.uk/docs/personal-pensions-consultation.pdf

The document does not only focus on refund of contributions, but also looks at other differences such as Trivial Commutation and Disclosure of Information between contract based (that’s Group Personal and Group Stakeholder pensions for most) and Trust based pension schemes (schemes with Trust Deed and rules for those not too sure). However, the refund point is probably the biggy.

I do believe there is a case for Defined Benefit (also known as Final Salary) schemes to retain the refund option. Such schemes continue to provide a known level of pension outcome for members, and as a result can be very expensive for the sponsoring employer. If retaining the refund option helps finance a little of this exceptional cost, and reduces admin costs also, then that seems a good trade-off for the pension guarantee.

However, I just can’t see the same rationale for Defined Contribution (also known as Money Purchase) schemes. The resultant pension from such schemes remains unknown until retirement, and is based on a combination of factors including contributions, charges, investment returns, life expectancy etc. These factors are consistent across both types of Money Purchase scheme, so providing a ‘get out of gaol’ card for the Trust based grouping seems inconsistent with the general thrust of reform.

Incidentally, NEST, a trust based scheme let us not forget, will not be allowing refund of contributions. If NEST, with their legal requirement to accept pretty much any pension saver in the UK regardless of the economics, can run without refund of contributions, then surely large company sponsored schemes should also be able to do so?

Best regards

Steve