The abolition of short service refund lump sums could jeopardise existing retirement savings and pressure to bring in such a change is being driven by self-interest says JLT Benefit Solutions.
The consultancy says the debate has become polarised, with Nest claiming it will become subject to competitive disadvantage and as a result providers and intermediaries potentially losing sight of the key issues. The rules do not need changing, it argues, because the amounts actually refunded are tiny compared to contributions, and withdrawing the option of being able to withdraw in the early months of employment could lead to more employees not joining schemes in the first place.
JLT argues that abolishing refunds of contributions would be a high-risk approach that could undermine the success of existing schemes and savings levels and of some employers’ commitment to workplace savings generally.
Duncan Howorth, chief executive of JLT Benefit Solutions says:”Taking such a risk can only be justified if there’s a real need based on tangible evidence and at this time, we see neither. Last year saw just £28.5 million refunded to employees. This compares to total contributions paid by employees of more than £5.2 billion. All this points towards a solution without a problem; indeed a solution that is more dangerous than the perceived problem itself. We recommend reviewing the abolition of refunds when concrete evidence is available in the 2017 review. Then we will have clear evidence from employers and employees.
“Abolishing refunds of contributions may, paradoxically, lead to fewer people saving for their retirement.”
