A former employee has lost an £8,000 pension pot after a "short service refund" was applied, a process that affected members of some pension schemes before October 2015. The individual worked for a company between 2013 and 2015 and had accumulated approximately £8,000 in their pension. After leaving the company to care for their mother following their father's death, they later attempted to trace their pension contributions.
According to an explanation from former Pensions Minister Steve Webb, the pension scheme was permitted to close the pension and refund the employee's contributions, returning the remainder to the employer, if an individual served less than two full years and did not transfer their pot elsewhere. The scheme's administrator stated that after the employee left, the scheme sent three letters over several months regarding the option to transfer the pension pot. As there was no response to these communications, the pension was closed.
The situation was further complicated by the fact that the employee had moved house shortly after leaving the company. While the administrator maintained that it sent correspondence to the last known address and received no undeliverable notifications, the employee had not updated their postal address with the scheme. In 2020, the employee did notify the scheme of their change of address, but by this time, the pension had already been closed and employer contributions refunded.
Notably, the employer operated a 'salary sacrifice' arrangement, meaning 100% of contributions were made by the employer, with the employee receiving a reduced salary. Consequently, there were no employee contributions to return. The administrator, XPS Group, acknowledged in a statement that while the scheme was administered in accordance with the legislation and rules in force at the time, they regretted not making it clear to the reader in 2020 that no benefits remained in the scheme.
Steve Webb noted that while this type of outcome should not occur with current pension rules, the case serves as a reminder for individuals to ensure their contact details are up-to-date with all pension providers to receive vital communications promptly. He also suggested that while schemes are often reluctant to use email for sensitive information due to security concerns and generally having better coverage of postal addresses, it might have been beneficial in this instance to use email to confirm receipt of correspondence after multiple letters went unanswered.