What are the options on leaving a scheme?
The options available on leaving a pension scheme depend on the scheme rules and on how long the member has been in the scheme.
Short service refund lump sum (SSRLS)
The option of a short service refund lump sum (SSRLS) is only available to members with short service periods, the service criteria depends on the scheme benefit basis. It is a refund of the member contributions only. Tax is deducted from the contributions at prescribed rates and the member receives the net amount.
A SSRLS is never available from a Personal Pension, including GPPs.
Defined Benefit Schemes
A SSRLS can only be paid to members who leave the scheme with less than two years’ pensionable service.
Members with less than 3 months’ pensionable service normally receive a SSRLS automatically on leaving the scheme whereas members with between 3 and 24 months have alternative options.
If the scheme is contracted-out the cost of reinstating the member into the State scheme will be deducted before the tax deduction. You should be aware that contracting-out ends for all schemes from April 2016.
Defined Contribution Occupational Pension Schemes
For members joining the scheme on or after 1 October 2015 a SSRLS can only be paid if they leave with less than 30 days pensionable service.
For members who joined before 1 October 2015, the SSRLS option is normally based on the same service criteria as described above for DB schemes. Consequently, with effect from 1 October 2017 a SSRLS will no longer be an option for members who joined before 1 October 2015.
SSRLS or Transfer Value
These options are normally given in the following circumstances:
Defined Benefit Schemes
If a member has between 3 months and 24 months’ pensionable service they can normally chose between a SSRLS or the value of their accrued benefits can be paid to another pension arrangement.
Defined Contribution Occupational Pension Schemes
The options are the same as for a DB scheme member only if they joined before 1 October 2015.
With a transfer value the member does not lose the benefit of contributions paid by the employer but you should note that the new scheme does not have to accept a Transfer Value.
Deferred Benefits or a Transfer Value
These are the options available to members under age 55 with longer periods of service.
Defined Benefit Scheme
For members with more than two years’ service.
The benefits accrued remain in the scheme until retirement. The pension is calculated at date of leaving and increases each year to offset the effects of inflation. This is normally referred to as a deferred pension or a paid-up pension.
Defined Contribution Scheme
For all Personal Pension Scheme members (including GPPs).
Also for occupational pension scheme members with more than 30 days’ service if they joined the scheme on or after 1 October 2015, and also for occupational scheme members with more than two years’ service if they joined the scheme before 1 October 2015.
The member’s pension pot remains invested until they decide to take their benefits and will fluctuate in line with the performance of the investments.
Over age 55
In addition to a Deferred Pension or a Transfer Value, if the member is over 55, there is also the option to retire or access benefits early.For members of an Occupational Pension Scheme, permission will usually be required from the:
For members of DB schemes, contributions will normally cease and the amount of pension accrued to the early retirement date will be reduced to take into account the fact that it will be paid for a longer period of time than anticipated.
Members with DC benefits have more flexibility in the options available to them from age 55 which we will look at later.
If a member wants to take their benefits early they need to remember that they won’t be entitled to any State Pension yet so they should consider if the income received from their pension benefits will be enough to meet their income needs in retirement
