Can You Get A Workplace Pension Refunded?

Did you know that if you have only been in post at your job for a short while, you could be eligible for a workplace pension refund? In this article, Hilltop Financial Planning explains what a pension refund entails, how to claim back pension contributions, and why the best place to start is with a comprehensive pension review from a regulated financial adviser.

What Is A Workplace Pension Refund?

You might be forgiven for naturally assuming that once the portion of your salary that goes towards your pension pot is taken out of your wages, it is off limits until retirement. But that is not always necessarily the case. In certain circumstances, you could be entitled to a workplace pension refund, which is a repayment of your contributions to a designated pension fund. However, there are some requirements to qualify.  

Who Is Eligible For A Workplace Pension Refund?

You may be eligible for a workplace pension refund if you choose to leave a defined benefit workplace pension scheme within two years of joining. Some public sector pension schemes provide a refund of pension contributions within five years but check with your provider. You could also be entitled to a workplace pension refund if your personal contributions exceed your earnings. However, you cannot claim a workplace pension refund for any contributions made via salary sacrifice schemes.

If you are a member of a defined contribution pension scheme, as most workplace pensions are, you only have 30 days to opt-out and receive a workplace pension refund. This is called a ‘short service refund’. Beyond that first month of service, your pension pot will remain invested until you reach pensionable age. So your options, in this case, are to either transfer, consolidate or leave your pension pot where it is.

How Much Can I Be Refunded If I Make Contributions That Are More Than My Earnings? 

If you’ve made personal contributions that amount to more than 100% of your earnings, then you might be able to claim a workplace pension refund. For example, if your earnings over the last tax year totalled £25,000, but your contributions to a personal pension amounted to £30,000 after tax relief was added, you would receive a refund of £4,000. This equates to the £5,000 overpayment, less the 20% tax relief paid back to HMRC.

Note that any workplace pension refund only covers your personal contributions, not those of your employer. It is also worth bearing in mind that if your pension plan provides tax relief at source (whereby your contributions are taken after tax) and you earn less than £3,600, you will only be able to claim a workplace pension refund on contributions over and above that amount.

Are Workplace Pension Refunds taxed? 

Yes, workplace pension refunds are taxed at 20% for the first £20,000 of contributions, as this would be classed as taking an income.

How Will I Receive My Workplace Pension Refund? 

You can apply for a pension refund directly from your provider, who can provide guidance about your eligibility and the best way to apply. In the case of defined contribution pensions, assuming you opt out within the 30-day cooling-off period, your provider will inform your employer, who will then cease taking pension contributions and pay your workplace pension refund directly into your bank account within 3-6 weeks. Defined benefit pension contributions are paid back directly from the pension provider.   

Reviewing Your Workplace Pension Schemes

While we don’t manage workplace pension refund applications, Hilltop can provide you with a comprehensive pension review that gives you complete oversight of your historic workplace pension schemes. Our experienced, regulated advisers can give you the lay of the land, explaining what is working well and what isn’t. It might be that a pension transfer to a better product could reduce your fees and improve your future outlook. Or a pension consolidation that brings all your pension pots together could make managing your pensions easier. 

A workplace pension refund is certainly attractive in the short term. However, the type of strategies we can suggest following a pension review can yield much more significant benefits for your longer-term prospects.

Hilltop Financial Planning: Pension Advisers

If you are planning to consult with your provider to arrange a workplace pension refund, we hope you found this article useful. To gain a better understanding of your pension schemes, the best place to start is to arrange a pension review with one of Hilltop’s knowledgeable advisers. We can identify effective strategies to help maximise the value of your pension pot and your resulting retirement income.

If you would like pension advice or to arrange a pension review, please contact us on 0161 413 7051. We are open 9am to 5pm Monday to Thursday and 9am to 4pm on Fridays. Hilltop is authorised and regulated by the financial conduct authority. Our advisers have over 100 years of combined experience and knowledge of working with people like you and helping them to make the most of their finances.