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Employees who opt out of the scheme
Following automatic enrolment, employees should complete form 'Opt Out' if they do not wish to remain in the scheme. Employers must no longer provide this for employees; the form is available from our website for members to complete. When the employee has completed the Opt Out form, they will forward this to their employer to complete. Employers should retain a copy for their records and forward a copy to SPPA.
Employers should collate and submit Opt Out forms on a monthly basis.
If an employee remains opted out with the same employer, they will be automatically re-enrolled in to the scheme after 3 years and 3 yearly thereafter.
Options on Leaving
A member who leaves the STSS or STPS, and depending on whether benefits are payable (an early leaver), may be entitled to choose any of the following:
The member must have accrued:
- 5 years pensionable service prior to 5th April 1988 or more
- 2 years pensionable service after 6th April 1988.
- preserve rights to provide pension and lump sum at NPA
- transfer rights to another defined benefit (DB) superannuation scheme.
No benefits payable
If a member is in pensionable employment on or after 6th April 1988 and has accrued less than 2 years service, or prior to this date has accrued less than 5 years service, no benefits will be payable.
- retain superannuation contributions in the STSS or STPS which can be added to any future contributions;
- receive a refund of superannuation contributions;
- transfer rights to another superannuation scheme;
- transfer rights to a personal pension scheme.
Action by the employer
When a member leaves pensionable employment, the employer must advise SPPA immediately by completing form STPS02. It is important that the form is completed accurately, with full details of the member's current salary.
Following the introduction of Auto Enrolment, a refund of scheme contributions can be made in the following circumstances:
Refund within the opt out period
Employers will be responsible for making a refund of any scheme contributions deducted from the date an employee is automatically enrolled into the scheme until they opt out during the initial opt out period. (See the Pension Regulators website for full details of the opt out period).
Refund outwith the opt out period/ceasing active membership
Outwith the initial opt out period, active members who cease membership can apply for a refund as soon as they leave pensionable employment. For refunds for employees who cease active membership, SPPA require details of the member's service so that an application can be made to HMRC who calculate the statutory deductions from refunds. This is most commonly in respect of Contributions Equivalent Premiums (CEP). Some refunds also involve deduction of a Payment in Lieu (PIL) in respect of reckonable service during which the member was contracted out of the former National Insurance Graduated Pension Scheme up to 5 April 2016, when contracting out ended.
To avoid unnecessary delay form STPS02 and any outstanding annual returns (if necessary on form STPS03), must be submitted to SPPA as soon as the member leaves pensionable employment.
Timing of an application (outwith opt out period)
A refund cannot be made by SPPA until an active member has been out of pensionable employment for more than 1 month. However, members do not have to wait for this period to elapse before applying for a refund. It is essential, therefore, that full up to date leaver/annual information is submitted to SPPA as soon as the member leaves pensionable employment.
On receipt of leaver form STPS02, SPPA advises members by letter of the options which may be available to them, including a refund of superannuation contributions. As only reason for leaving codes 05, 07 and 08 in section 8 of form STPS02 activate the issue of this letter, it is essential that the correct code is entered and the form submitted promptly.
The 1 month waiting period commences from the last day of paid employment or holiday. In view of this and because SPPA is required to contact HMRC about deductions for National Insurance purposes, a refund may not be paid for some time after the last day of paid employment or holiday.
Members who leave pensionable employment without qualifying for benefits may choose not to claim a refund if it is their intention to return to reckonable service at a later date. If an employee does not return to pensionable employment before Normal Pension Age (NPA), they should contact SPPA regarding their contributions.
Effects of taking a refund
Where a refund of contributions is made, there is no longer any entitlement to personal benefits or dependants' benefits.
Service in respect of a period where contributions have been refunded cannot be reinstated.
The exception to this is where the member withdrew contributions before 1st June 1973 and has since re-entered pensionable employment. In this case the member can repay contributions, with compound interest at 3.5% per annum from the date of the refund to the date of repayment.
Members who can receive a refund (ceasing active membership)
Where a member is outwith the initial opt out period and wishes to cease active membership, provided they have not qualified for benefits, they can receive a refund of their contributions when they leave the STSS. To qualify for a refund a member must have accrued:
- less than five years' pensionable employment prior to 6th April 1988.
- less than two years' pensionable employment on or after 6th April 1988.
- less than one year's pensionable employment after receiving a benefit (re-employment).
A part-time member's whole period of part-time employment counts towards the qualifying period. For example, if a member worked part-time for a year, this would count as one year for qualification (but only 6 months for the calculation of benefits).
Deductions from refunds
A Contributions Equivalent Premium (CEP), representing the additional National Insurance Contributions (NIC) which would have been paid to the State scheme, must be paid in respect of members who receive a refund of contributions in respect of service between 6th April 1978 and 5th April 2016 inclusive. This payment secures an additional pension for a former member payable by the State scheme in respect of any such employment between these two dates. The employee's share of the CEP is recovered from any refund of superannuation contributions.
Income tax is deducted from all refunds of superannuation contributions at the standard rate after the deduction for CEP has been made. This deduction covers the tax relief which was given at the time the superannuation contributions were originally paid by the member.