From October 2015, employees will no longer be able to recoup the funds they have paid into their pension pot if they leave their job within two years. Although, the Chancellor recently underlined his commitment to those who have ìworked hard and saved all their livesíî freedom to spend their savings as they like, it would appear that fledgling professionals are not being afforded the same deference.
Defined contribution ñ also known as money purchase ñ workplace pension schemes presently see an estimated 20,000 short service refunds per year, according to the Department of Work & Pensions (DWP).
Individuals enrolled in a defined contribution workplace pension scheme are currently eligible for these ìshort serviceî refunds if they choose to leave their place of employment having worked there for between 3 months and 2 years. Typically, workers are reimbursed the gross amount they have paid into their pension pot since their employment tenure began, occasionally with interest on top.
However, the government has decided to draw a line under this practice due to worries that people switching jobs is becoming increasingly common and if short service refunds are persistently accessed, then these workers could have next to nothing left for subsistence after theyíve stopped working.
The new reform means only workers who quit their job within 30 days of starting will be capable of re-claiming money they have paid into a defined contribution workplace pension scheme. This is the only pension scheme, however, affected by the aforementioned reform with personal pension schemes, final salary and defined benefit contribution workplace schemes not impinged on.
The DWP has made their position clear on pension schemes, stating that money poured into a pension scheme ought to be ìinvested for its intended purpose ñ adding to the saverís overall pensionî. In order to simplify this process, the government has laid out plans for the automatic transferral of workersí pension contributions to their next employer, under a policy called ìpot follows memberî.
Steve Webb, pensions minister, suggested that previous pension rulings are outmoded as people switch jobs far more regularly nowadays: ìToday, the average Briton has 11 different jobs in their lifetime and we need the rules to reflect this reality,î
ìIf people change jobs regularly and ëcash outí their pension each time, they stand no chance of building up a decent pension pot.î
Which? executive director, Richard Lloyd, said: ‘The Governmentís pension reforms are the biggest opportunity for years to make this market work in the best interests of consumers.
‘With many people uncertain theyíll have enough to live comfortably in retirement, now is the time to introduce a consumer-friendly system with good quality guidance that helps people make the most of their hard-earned money.
‘With only six months until the reforms come into effect, the government, industry and regulators must all work together to ensure people get a good deal throughout their retirement.’
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