From 1 October 2015, schemes providing members with solely money purchase benefits will have to grant a deferred benefit to any new member who leaves the scheme having completed at least 30 days pensionable service. It will no longer be possible to give such members a contributions refund if they have completed less than two years in the scheme.
The abolition of the two year vesting period is in response to the Government’s concern that, with the introduction of automatic enrolment, the ability to make short service refunds could have an impact on an employer’s choice of scheme and significantly increase the number of refunds being made.
The change will only apply to individuals who become scheme members on or after 1 October 2015 but, as the legislation is not overriding, scheme rules permitting short service refunds will need amending to reflect the change. If they are not amended and a short service refund is paid under the rules as they currently stand, it will be in breach of the preservation legislation and pensions tax legislation.
Employers and trustees should check the provisions of their scheme rules and, where necessary, amend those rules to reflect the change before the new requirements take effect on 1 October 2015. Member communications will also need to be updated.