Pension refund: Can I get my pension contributions back?

Can I claim back my pension contributions? Having second thoughts about the pension scheme you chose for amassing your pension pot, but afraid that if you leave it now, you’ll lose the contributions that you’ve made so far? Fear not, if you decide you want to leave your pension scheme rather than make a pension transfer, you won’t lose what you’ve built up so far. After all, it’s your money!

Depending on your specific circumstances, you may be able to get a refund of your pension contributions. To find out if you can claim back pension contributions and what options you have specifically, you should contact your pension scheme provider.

What is a pension refund?

Usually, your pension contributions will remain in the pot until you are eligible to access them, usually around pension age. However, in some cases, you may be able to request a refund of the contributions you’ve paid in. Your pension refund is thus a return of the contributions that you’ve made into the pension scheme requested before a predetermined date.

Can I get refunded within 2 years?

If you choose to leave your workplace pension scheme within 2 years of joining in, you may be entitled to a refund of pension contributions within 2 years. Similarly, for defined benefit pension schemes, including final salary and career average pensions, within 2 years of joining, you may be entitled to a refund of your pension payments.

Can I get my NHS pension contributions back? For state-run pensions like the NHS pension, if you leave the pension scheme before reaching the 2-year mark, whether or not you are entitled to a refund will depend on when you reach pension age – if you leave the pension scheme before reaching pension age, you can reclaim pension contributions. For teacher pension refunds, you can claim the refund if you have less than two years of qualifying service.

If your employer automatically enrolls you in a workplace pension scheme, or you’ve changed your mind about your stakeholder, personal or self-employed pension, you can request a refund of any pension contribution you’ve made within a month of joining. You may also be able to get a refund if you’ve contributed more than your earnings. For defined contribution workplace pensions, and you decide to opt-out within 30 days of joining, you are also eligible for a refund of whatever contributions you may have made.

Finally, if the contributions that you personally have made, meaning any contributions made to the pension that are not from your employer, amount to more than 100% of your earnings, you may be eligible to request an excess contribution lump sum refund.

Refund of pension contributions within 5 years

If you meet the specific eligibility requirements, you may be entitled to request a refund of pension contributions paid to public pension schemes within the last 5 years, instead of 2. Speak with your pension scheme provider to understand if you meet the eligibility requirements.

Pension refund process and timeline

Applying for a pension refund in the UK starts with determining eligibility, such as having fewer than two years of qualified pension scheme participation. After eligibility is established, the person must contact their pension provider or employer, complete the necessary application paperwork (such as the RF12 form for NHS workers), and submit them to the proper authorities. The employer may also fill out the application. Electronic payments take 3 to 10 business days or longer if further information is needed. Note, however, that you can’t get a refund of any contributions that you made to your pension through salary sacrifice schemes.

After processing, the pension refund is sent to the individual’s bank account or payment order, perhaps with National Insurance and income tax deductions. The timing of a UK pension refund depends on the pension scheme and the employer or pension provider’s responsiveness. Refunds may affect future retirement benefits; therefore, individuals should also consider transferring pension rights or connecting membership before seeking a refund.

Ask your pension scheme provider for information on your pension refund eligibility and how to claim back pension contributions. They will be able to provide you with specific information on how to request your refund. Before you go to claim your refund, consider speaking with a financial adviser about the pension refund procedure, timetable, how to invest money for retirement and what other pension options you have.

Tax Implications of Pension Refunds

Understanding the tax consequences of a UK pension return is crucial. Pension refunds are subject to income tax at varying rates. After the Contributions Equivalent Premium (CEP), a 20% tax is imposed on the first £20,000 contribution, and 50% taxes may apply on refunds above £20,000. This taxation is non-recoverable and happens regardless of tax relief at the time of refund or permissible when contributions were initially made.

National Insurance deductions may also apply, especially if pension contributions were contracted-out. To reinstate State Second Pension (Additional State Pension) benefits, the CEP must be paid to the National Insurance Contributions Office at HMRC. When a refund is provided, members of certain pension plans who are contracted out of the State Second Pension (formerly SERPS) and pay a lower National Insurance rate must pay a CEP to HMRC, with their amount deducted from the return.

Back dated pension contributions

Carrying back pension contributions allows you to pay additional contributions to your pension beyond the annual allowance while still receiving tax relief. In the 2021/2022 tax year, you can contribute up to £40,000 to your pension and you can carry over any unused benefits from the previous three years.

If you’ve surpassed your annual allowance in one year, but did not use the full allowance in previous years, you can make additional contributions to your pension using the previous years’ residual allowance and still receive tax relief, as long as you use the residual allowances from up to 3 years prior to the current tax year.

FAQ

Who is eligible for a pension refund?

To be eligible to request a pension refund, you must have joined your pension scheme within two years from the date you make the request.

What are backdated contributions?

In the case where you did not make full use of your annual personal allowance in previous years, backdated pension contributions allow you to pay tax-efficient contributions even if you have reached the current year’s limit.

Are pension refunds taxed?

Refunds of pension contributions are taxed at 20% for the first £20,000 of contribution received.