Background
Last year, following consultation, the Government decided to address the problem of “small pots” – small pension accounts created by individuals having a short period of service in a scheme – by arranging that members’ pension pots would follow them automatically as they move jobs.
At the same time the Government announced that it would abolish short-service refunds of contributions, since these threatened the ability of individuals to build up a meaningful level of pension if they changed job too frequently. However, the Government did undertake to explore whether there was merit in allowing schemes to refund the smallest “micro-pots” (which might be those under £200), recognizing that the cost of transferring such a pot could be higher than the pot itself.
The Government response
The Government have deduced that, in practice, refunding a micro-pot is more complex than they thought. The pot has to be separated into employer contributions, employee contributions and tax relief. The employer contributions will then be treated differently according to the nature of the scheme, being absorbed into the general fund in the case of trust-based schemes or refunded to the employer in the case of contract-based schemes.
The Government notes also that, even in a period of only three months, people can build up pots which are worth transferring to future pension schemes. They have decided, therefore, not to allow “micro-pot” refunds at this stage, although the situation will be kept under review.