Getting your pension contributions refunded

If you leave your pension scheme, you don’t lose the benefits you’ve built up.

They belong to you, and you have several options for what to do with them. Your scheme administrator or pension provider should tell you which options apply to you.

If you leave your defined benefit pension scheme, which includes final salary and career average pensions, with less than two years’ membership, you might be able to get a refund of the contributions you’ve paid.

Any contributions refunded are taxed at 20% on the first £20,000.

Do you have a defined contribution (or money purchase) workplace pension scheme set up by your employer?

If so, and you want to leave it within 30 days of joining, known as opting out, you can ask for a short service refund of just your own contributions (and not your employer’s).

Contributions refunded are taxed at 20% on the first £20,000.

If you leave employment (or opt out) after more than 30 days, you can’t ask for a short service refund. Instead, the pot of money you’ve built up in the pension will remain invested. You can either leave this where it is, in which case you’ll be able to begin taking money from it at age 55. Alternatively, you can move the pot and combine it with another pension you have.

If you set up a personal pension, a stakeholder pension or a self-invested personal pension yourself directly you can take a refund under the cooling off period if:

• you’ve been a member for less than 30 days
• what you get back is the total amount of contributions you paid – with any investment gain or loss, net of basic rate Income Tax relief.

In some cases, you have a contractual right to cancel after 30 days. You will need to check with the pension provider.

If you ask to cancel after 30 days and this is not possible, the pot of money you’ve built up in the pension will remain invested. You can either leave this where it is, in which case you’ll be able to begin taking money from it at age 55. Alternatively, you can move the pot and combine it with another pension you have.

If you’ve made contributions using salary sacrifice, these can’t be refunded. This is because they’re classed as employer contributions rather than personal contributions. Check with your employer if you are not sure if you’ve made contributions using salary sacrifice.

If you have made personal contributions that are more than 100% of your relevant UK earnings for Income Tax purposes, you may be able to get a refund – this is called a refund of excess contributions lump sum.

Personal contributions include contributions from you and contributions made on your behalf by somebody else. It does not include contributions from an employer.

If you earn less than £3,600 and have made contributions into a pension that operates its tax relief on a relief at source basis, you’ll only be entitled a refund of contributions where they are above £3,600 (£2,880 before 20% tax relief is added).

The maximum amount you can be refunded is the amount of your contributions that you make that are more than your relevant UK earnings for Income Tax purposes.

Example:

In the 2021/22 tax year, Rita made contributions of £24,000 to a personal pension. After tax relief was given this came to £30,000. Her relevant earnings for the tax year ended up being £25,000. This meant she had contributed more than her relevant earnings.

As Rita can only receive tax relief on her contributions up to £25,000, the provider refunded the £5,000 that was more than her relevant earnings.

The refund made to Rita though is only £4,000 with £1,000 being re-paid to HMRC as this was the tax relief that had been claimed on the refunded contributions.

There is no tax to pay when receiving a refund of excess contributions lump sum.