Of general interest to schemes providing defined contribution (DC) benefits is the DWP’s recent announcement that it will bring section 36 of the Pensions Act 2014 into force from October 2015, effectively abolishing short service refunds for members with less than two years' pensionable service.
Section 36 amends section 71 of the Pension Schemes Act 1993, so that where all the member’s benefits to be provided by the scheme are DC, entitlement to short service benefit begins once the member has 30 days’ qualifying service. The implementation of this provision is likely to coincide with the introduction of the new automatic transfer mechanism (“pot follows member”), which the Government has indicated should come into effect on 1 October 2015.
This will mean that DC scheme members with more than 30 days’ service will keep their benefits within the scheme or transfer them to another arrangement. Currently, members with under two years’ service can receive a refund of their contributions. However, the amendments will only apply to individuals who become members of a scheme on or after the date section 36 comes into force, meaning that the last contribution refunds for those with between 30 days’ and up to two years’ service could potentially not be paid until October 2017.
Neither defined benefit (DB) schemes nor contract-based schemes are affected.