If you are entitled to a refund of contributions, the amount you receive will be less than the employee contributions you paid.
By law, 2 deductions must be made from the gross contributions refunded to you:
- Pension contributions are subject to tax relief depending on your personal tax circumstances. Regardless if you received tax relief, HMRC claim 20% tax on refund payments and you cannot reclaim it. Tax is deducted from your gross contributions after the certified amount deduction.
- Certified amount deduction - The LGPS was contracted out of the State Second Pension Scheme (S2P) up to 5 April 2016. If you were a member of the LGPS before 5 April 2016, you paid lower National Insurance contributions because of this. When you receive a refund of pension contributions you must be reinstated into the S2P. A certified amount deduction, known as the Contributions Equivalent Premium (CEP), is paid over to HM Revenue and Taxes (HMRC) to reinstate you. You and your employer pay the CEP. A deduction is made from your refund of pension contributions for your share of the CEP.
The contributions which your employer paid are not refundable. Neither you or your employer can receive a refund of the employer's contributions; they remain in the Fund.
Process
Find out the process to receive a refund
Example
John terminates employment and is not entitled to any pension benefits. He is entitled to a refund of his pension contributions. He had paid contributions of £780.00.
Gross contributions £780.00
Less Certified Amount £124.80
Less Tax at 20% £131.04
Total deductions £255.84
Net refund of contributions £524.16
John receives a refund of contributions of £524.16