RPSM09104710 - Technical Pages: Member benefits: Lump sums: Short service refund lump sum

DWP legislation provides a level of benefit protection to a member of an occupational pension scheme who leaves that scheme early, before their normal pension age under the scheme. This is referred to as preservation.

The principal requirement of preservation is that where a member leaves pensionable service under an occupational pension scheme with at least 2 years' ‘qualifying service’ they will be entitled to a minimum level of preserved benefit. This is referred to as a ’short service benefit’. This short service benefit represents a fair proportion of what the member’s prospective benefits would be under the scheme at their normal pension age.

Where a member leaves service before completing two years qualifying service and does not qualify for a statutory short service benefit the scheme is not obliged to provide the member with a benefit. In these circumstances DWP legislation allows a refund of the members contributions. This is not obligatory and some schemes will provide a preserved benefit or the option of a transfer to another scheme.)

The relevant DWP legislation here is Chapter I and Chapter 5, Part IV Pension Schemes Act 1993 (particularly section 71, which defines the above terms used, and sections 101AA to 101AI, as introduced by section 264 of the Pensions Act 2004) and the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (SI 1991 No 167).

The tax legislation therefore provides for such payments in the authorised member lump sum rules. Such a payment is referred to as a short service refund lump sum.