Options on Leaving Your Employer

Yes. Membership of an employer's pension scheme cannot be made a compulsory term of employment.

If you have left service with less than 2 years service, you may be entitled to a refund your own contributions. A refund of contribution is subject to tax at the following rates:

• On refund payments before 6 April 2010 - 20% on the first £10,800 and 40% on the excess.
• On refund payments on or after 6 April 2010 - 20% on the first £20,000 and 50% on the excess.

If you were contracted-out, a deduction will also have to be made to buy you back into the State Second Pension. The employer contributions are not returned to you.

If the scheme is a money purchase arrangement, then any refund may be based on the value of your contributions. This may be higher or lower than the actual contributions made.

If you have completed two or more years service, a refund of contributions is not available to you.

If you are over 55 and the scheme rules allow. It may be a requirement of the scheme's rules that consent is first obtained from either the sponsoring employer and / or the trustees. If you are under 55 a pension can only be paid on grounds of ill health.  Click here to read more about minimum retirement ages.

On leaving an occupational scheme you should, within three months of leaving service, be given a statement of your options. If you have more than two years service and do not make a decision, under a final salary arrangement, your pension will be preserved for payment at your scheme's normal pension age. If you have less than two years but more than three months and do not exercise the option of transferring, the scheme may pay a refund of your contributions, although some schemes will allow your pension to be preserved until retirement. If you have less than three months service the only option may be a refund of contributions.

Under a money purchase arrangement, your fund will remain invested. At retirement, your pension will depend on the investment performance between leaving and taking your benefits, and annuity rates at the time you elect to draw your benefits.

If the scheme is on a money purchase basis then the 'pot of money' built at retirement will be used to buy a pension. Hence the pension will depend upon the amount contributed over the years and what this has accumulated to through investment performance, and annuity rates at retirement. Annuity rates are based on the age and gender of the member at retirement plus the general level of interest rates. As interest rates are currently low then so are annuity rates.

Whether there will be pension increases depends upon the period of service to which the pension relates, the scheme rules and whether or not the scheme is contracted in or contracted out. Please see our section on pension increases for further details.

A preserved pension is one that becomes payable in the future (typically at normal retirement age) and to which the employee has ceased to contribute as the member has either opted out of the scheme or left the service of the scheme.

There may be increases to the preserved pension between date of leaving and when the member takes the pension, depending on the type of scheme, whether it is contracted out or not, the scheme rules and overriding legislation.  Please see our section on revaluation for further details.

A transfer value from an occupational final salary or career average scheme is calculated on advice given by an actuary and based on guidelines issued by the actuarial profession. It will normally represent the capital value of the preserved pension and will take into account any guaranteed pension increases due both before and after retirement.

The transfer value is the scheme actuary's assessment of how much needs to be invested now to produce a pension equal to the projected preserved pension payable at the scheme's normal retirement age. The rate of return used in this calculation is based on the estimated return from equity investments with an allowance for an element of gilt returns.

The lower the rate of return used the lower the expected future investment return and so the higher the transfer value needs to be. Conversely, if investment conditions justify the use of a higher rate of return, transfer values will reduce.

For an occupational money purchase scheme, the transfer value is usually the same as the value of the member's fund at the time of transfer.

It did not become a legal requirement to maintain a pension for a member on leaving until 6 April 1975. Usually, for those leaving before this date, any contribution made by the member was refunded on leaving and if the scheme was non-contributory, there was usually no benefit at all on leaving.

If you left your pension scheme after 1 January 1986 you do have the right to have a transfer value quoted to you. The right to transfer will remain until 12 months before your normal retirement date. It may still be possible to transfer within 12 months of your normal retirement date but you would need the consent of your scheme's trustees before doing so.

If you left your pension scheme before 1 January 1986, a pension scheme does not have to provide a transfer value if they fully protect your pension from inflation during the period from leaving until retirement.

If you leave your employer's occupational pension scheme, but remain in your employer's employment, a transfer value in respect of service accrued before April 1988 may not be available until you leave employment.