4.3 Refunding Employee Contributions
4.4 Preservation of Pension Right
4.1 Options on Leaving
4.1.1 Auto enrolment
All employees, eligible to join the HSC must be automatically included in the HSCPS from the first day of employment. Eligible employees will no longer be allowed to opt out of the HSCPS before they take up their employment. They must be enrolled in the first instance.
Following enrolment, if an employee wishes to opt out of the scheme, they can do so by completing the form
There are two types of opting out of the scheme –
- opting out (within the 3 month opt out period)
- ceasing active membership (members opting out after the opt out period, leaving the scheme in that contract or leaving the scheme or leaving HSC employment)
It has been agreed, that the opt out period of one month in the scheme regulations in which employees are treated as never having joined, will be extended to three months. This will allow HSC employers more time to deal with those employees who wish to opt out of the scheme and enable them to make refunds of contributions locally, rather than the member having to contact HSC Pension Service directly to apply for their refund of employee contributions.
Please do not send copies of opt out forms for members who opt out. HSC Pension Service does not need to see these. However, under auto enrolment regulations, employers must keep a copy of the opt out notice (original format) for four years.
The opt out form can be used for either situation and should be completed and signed by the employee. This should be forwarded to their HR/PSSC who will take the necessary action to record the opt out and to stop the deduction of pension contributions.
Additionally, an opt out form will be required when an employee leaves a contract or leaves the scheme in its entirety but remains employed by the HSC in that contract.
Employees who have more than one employer, should complete an opt out form for each employment they wish to opt out of.
The new opt out form has comprehensive guidance attached and we have updated relevant guides, factsheets and web based information to take account of the changes under AE.
Detailed information regarding employer’s responsibilities under AE can be found on the Pension Regulator or DWP websites.
When a member leaves the scheme before becoming entitled to payment of benefits, there are several options open to them, depending on the reason for leaving and the amount of membership they have accumulated.
Options may include:-
- opting out but remaining in HSC employment
- a transfer of pension rights to another scheme or other UK HSC sche
- preservation of pension rights.
- a refund of employee contributions
Employers are advised that they have a legal responsibility to ensure that all leavers are aware of the options open to them and the possible consequences of leaving the scheme. Information on leaving the scheme is available in our guide .
There are time limits for some of the options for members who leave, particularly when arranging a transfer of pension rights.
4.1.2 Employees who opt out of the scheme
All employees, eligible to join the HSC must be automatically included in the HSCPS from the first day of employment. Eligible employees will no longer be allowed to opt out of the HSCPS before they take up their employment. They must be enrolled in the first instance.
Following enrolment, if an employee wishes to opt out of the scheme, they can do so by completing the form
There are two types of opting out of the scheme:
- Opting out (within the opt out period)
- Ceasing active membership (members opting out after the opt out period, leaving the scheme in that contract or leaving the scheme or leaving HSC employment)
The opt out form can be used for either situation and should be completed and signed by the employee. This should be forwarded to their HR/Payroll department who will take the necessary action to record the opt out and to stop the deduction of pension contributions.
Employers should ensure that employees considering opting out are in possession of sufficient information to make an informed decision either on their own, or with the help of an Independent Financial Adviser (IFA)
4.1.3 Options – Within 12 months of leaving scheme
Where a member leaves the scheme with less than 2 years service including qualifying service, they will normally cease to be members of the scheme and have the following options available:
- transfer to another provision
- refund of contributions
Options – following more than 12 months break
Where a member leaves the scheme with less than 2 years service including qualifying service, they will have the following option only:
- refund of contributions. (link to refunds)
4.2 Career Breaks
4.2.1 Authorised periods of absence
An authorised period of absence (for reasons other than illness or injury) is usually referred to as a career break. It is used to allow employees to take a long term break from their employment to undertake further education or fulfil domestic commitments. It is not given to allow the member to undertake alternative employment.
Although a career break shall not be regarded as a break in service for HSC continuous service purposes, the break itself will not count as reckonable service for benefit purposes.
It should be noted, however, that under the scheme rules death lump sum payments are based on the best last 365 days actual pensionable pay in the 3 years prior to death. Members may wish to bear this in mind when agreeing a period for a career break.
NB: HSC PENSION SERVICE requires written notification from employers of the start date of a career break and also notification of when the break ends.
4.2.2 Authorised breaks
The HSC scheme provides for members of both the 1995 and 2008 sections & 2015 Scheme (excluding locum practitioners) who are on an authorised break(including a career break), to choose to continue to pay contributions towards membership for a limited period. This is provided that their contract of employment is retained.
From 1 April 2013, members who choose to continue to pay contributions to the scheme can do so for a period of six months. During this period, contributions also remain payable by the employer. The member can choose to extend the period for a further 18 months. However, if this option is taken, the member would be responsible for payment of both employee and employer contributions. Please note that contributions must be paid for the first six months to allow the member the option to extend for a further 18 months if required.
4.2.3 Submission of contributions
Contributions should be submitted by employers in the same way each month as for all other active members. These should not be paid as arrears on return to work. The employer should make arrangements with the member before the leave begins, to collect the contributions due and pay promptly to HSC Pension Service. It is not compulsory for a member to continue to pay contributions during an authorised break. If a member chooses not to continue with their membership of the scheme, employers must submit leaver information to HSC Pension Service in the normal way.
4.2.4 Added Years Purchase
Contributions for any existing added years should continue to be deducted on all contracts where the break is for less than 1 year. In cases where the break is more than 1 year contributions will be collected on the first 10 days paid employment and proportionate credit will be given.
4.3 Refunding Employee Contributions
4.3.1 Leaving HSC
Members under the relevant scheme section age limit who leave HSC employment with less than 2 years’ service, including qualifying service, in the scheme, without entitlement to benefits may apply for a refund of their pension contributions. Form should be used.
4.3.2 Opting out of scheme
From 6 April 1988 members can also apply for a refund if they opt out of the scheme – the employment does not have to terminate in these circumstances. Forms and should be used
4.3.3 Deductions
Members should be advised that a refund of contributions will be subject to certain deductions eg: tax and Contributions Equivalent Payment (CEP) and before requesting a refund they should consider the full implications of taking a refund.
4.3.4 Options
It is particularly important before requesting a refund that members consider their options if they intend to:
- return to pensionable employment in the HSC
- take up an employment in which they may be subject to a Direction and become pensionable under the HSC scheme
- take up approved employment or an approved course of study
- take up other employment where they will be subject to a scheme to which their pension rights may be transferred
- take out a personal pension
- Members who wish further information on these options should be advised to contact HSC Pension Service at hscpensions@hscni.net
Effects of Taking a Refund
4.3.5 Re-employment – time limit for repayment
Members who take a refund of contributions and within 12 months re-join the scheme and wish their previous service to reckon, or enter an employment which they wish ‘approved’ in order to avoid a disqualifying break, must repay the net amount of the refund (i.e. the amount received by the member) within 6 months of taking up their new employment.
4.3.6 Re-joining scheme within one month
When a member applies for a refund of contributions and then re-joins the scheme after a break not exceeding one month, the previous service will be taken as qualifying service for the purposes of determining an entitlement to any subsequent refund, or an entitlement to benefits including preserved benefits.
4.3.7 Qualifying for a refund
Entitlement to a refund will arise when members under normal pension age leave HSC employment or opts out of the scheme and their service including qualifying service is less than 2 years.
A refund may be claimed:
- on leaving HSC employment, provided that any paid leave due does not extend the service to 2 years or over.
- on opting out of the scheme but continuing in HSC employment.
- when the member’s service in the scheme is no longer reckonable following a disqualifying break of 12 months.
4.3.8 Non entitlement
A refund cannot be claimed when a member:
- has 2 or more years’ service including qualifying service
- is entitled to immediate payment of benefits from the scheme
- is in concurrent pensionable HSC employment and has left one employment but not the other
- has re-entered pensionable HSC employment and either did not have a break between termination and recommencement, or had a break of less than 12 months but did not apply for a refund during the break
- is on leave of absence either paid or unpaid.
4.3.9 Deductions
Income Tax
Income tax will be deducted from a refund of pension contributions at a current rate. The deduction is made to cover the tax relief which the member received during employment when contributions were deducted from earnings. The tax deduction is not recoverable.
Contributions Equivalent Premium
A Contributions Equivalent Premium (CEP), representing the additional National Insurance contributions payable to the State scheme in respect of employees whose pension scheme has not been contracted out, must be paid for those members who leave or opt out of the scheme and receive a refund of pension contributions for contracted-out HSC employment up to 31/03/2016.
Contributions Equivalent Premiums – State Pension
The CEP which is paid to the National Insurance Contributions Office (NICO) by HSC Pension Service secures an additional element to the former member’s State pension and is paid by the State scheme in respect of the contracted-out employment after 5 April 1978.
The employee’s share of the CEP is recovered from the member’s refund of contributions; the balance is met by the scheme.
4.3.10 Application
Opting out of Scheme
The introduction of Auto Enrolment legislation means there are now different ways in which a member can opt out of the scheme and depending on which is applicable, will affect how and when a refund of contributions is made.
Opting out within the opt out period
When a member opts out within the opt out period, this is referred to as ‘Opting Out’. Members are treated as having never been a member of the scheme, which means HSC Pension Service holds no liability. In these circumstances, the employer/PSS will refund all the contributions directly to the member and will store the opt out form on their system for future reference. If a member has already qualified for pension benefits, with previous service accrued, this will not be taken into account when their employer makes the refund. This is because they are treated as having never been a member, with only the employment/contract they are opting out of.
Opting out, outside the opt out period – ceasing active membership
If a member is outside the initial opt out period, but does not wish to remain in the scheme they can still chose to opt out. However, this is now referred to as ‘ceasing active membership’ and in these cases, HSC Pension Service holds the liability i.e. refund/transfer/pension. The options available to the member after ceasing active membership will depend on how much service they have previously accrued in the scheme.
4.3.11 Leaving HSC
When a member leaves HSC employment, an application for a refund of contributions can be applied for on form .
Leaver details should be submitted by the employer as quickly as possible to allow the refund to be processed.
4.3.12 Application for refund of contributions in respect of a deceased member – within 12 months of leaving scheme
If a member dies within 12 months of leaving the scheme and with less than 2 years’ service a death gratuity is paid. HSC Pension Service is still required to pay CEP and Tax to HMRC unless the member was married at the date of death.
If a member dies in service with less than 2 years calendar service they will qualify for a lump sum death benefit. If they were married, the spouse is entitled to a short term pension for three months and if dependent children, for 6 months.
CEP and tax should also be paid to HMRC on these occasions. NICO should be informed the member has died.
4.3.13 Application for refund of contributions in respect of a deceased member – more than 12 months after leaving scheme
If a member dies more than 12 months after leaving the scheme without entitlement to preserved pension rights a refund of contributions will be payable to the legal personal representatives.
The legal personal representative should enter details on and forward it together with the death certificate to HSC Pension Service.
4.3.14 Former members living abroad
It will be possible to pay refunds directly to former members living abroad.
4.3.15 Refunds on arrears of pay
Refunds of contributions, where this is applicable, will be made by HSC Pension Service on receipt of any retrospective adjustment for arrears of pay. Payment will be issued to the address given on the application form unless HSC Pension Service is otherwise notified.
In the case of arrears of pay due to a former member and being paid more than 6 weeks after the employment has ceased the employer should deduct National Insurance contributions at the contracted-in rate.
Revised figures from the employer for contracted-out earnings will therefore not be necessary if the retrospective payment of arrears is made 6 weeks or more after termination.
4.3.16 Repaying refunded contributions
Members who have received a refund of contributions following termination of employment or opting out of the scheme and within 12 months can either:
- re-join the scheme
- join another HSC scheme in England or Wales, Scotland or the Isle of Man
- repay the refunded contributions within 6 months of re-entry if they wish their previous service to become reckonable again.
The amount to be repaid will be the net amount of the refund (the sum the member actually received).
Any sum repaid under this arrangement does not, however, attract tax relief. Members who re-join the scheme and wish to repay refunded contributions should inform HSC Pension Service on receipt of the letter which is issued when they re-commence employment.
4.4 Preservation
Preservation action is the same for all sections of the scheme. However, please remember that NPA is – 60 for members of the 1995 section; 65 for members of the 2008 section and the later of Age 65 or State Pension Age (SPA) for members of the 2015 .
Minimum Pension Age refers to the earliest age a member can retire from the scheme.
Members who leave HSC employment or opt out of the scheme before becoming entitled to receive their retirement benefits and who have 2 or more years’ service including qualifying service will be eligible to preserve these benefits for payment at NPA, or earlier if they become permanently incapable of further employment due to health reasons.
Compulsory preservation will apply only after a 12 month disqualifying break from the scheme for 1995 & 2008 sections and 5 years for 2015 Scheme membership.
4.4.1 Preservation of pre 6 April 1988 service
Preservation also applies to members who have opted to transfer their pension rights to an approved Personal Pension scheme but who have had to retain pre 6 April 1988 reckonable service in the HSC scheme.
4.4.2 Members with less than 2 years’ service
Members who have less than the 2 years’ service and leave the scheme cannot preserve their pension rights following the disqualifying break of 12 months/5 years.
Members can however safeguard their pension rights by not incurring a disqualifying break if:
- termination of service is due to illness injury.
4.4.3 Members leaving the scheme
When a member leaves the scheme the employer should submit the leaver data via the electronic interface submission.
PSSC must provide a total earnings figure for the last 365 days service.
This information is essential for subsequent preservation action and ultimate calculation of benefits when the member reaches age 60.
4.4.4 Preservation letter
HSC Pension Service will write to members confirming that their benefits have been preserved approximately 12 months after they have either opted out of the scheme or terminated employment, provided the member has not re-entered pensionable HSC employment during the 12 months break or become entitled to payment of the preserved benefits.
The value of the preserved benefits at date of leaving will be stated in the individual’s letter, with the member being asked to inform HSC Pension Service of any relevant or subsequent changes in personal circumstances e.g.: change of address.
When a member’s benefits are due to be preserved HSC Pension Service will request from the employer details of the pensionable remuneration if this is not already held by HSC Pension Service. No further action is required by the employer.
4.4.5 Further membership
Members who leave the scheme with preserved rights may re-join the scheme at any time prior to NPA. Members can re-join any time before age 75 in the 2008 section and also in the 2015 Scheme. This also applies to members of the 1995 section, unless the member is over age 70 on 31 March 2008 or has special class status and is over age 65. When the member eventually retires HSC Pension Service calculate whether it is beneficial to pay a separate or a combined pension in respect of the member’s previous pensionable employment.
4.4.6 Preserved Benefits are payable
- from normal pension age (60 or 65 or SPA)
- HSC employees who’s Benefits were preserved after opting out of the scheme provided they have left HSC employment and reached NPA
- following application and approval for early payment on ill health grounds
- on application for early payment with actuarially reduced benefi This is only applicable to members who are aged 55 (unless the member retains a protected pension age – need to check with HSC Pension Service) or over.
4.4.7 Transfer of preserved benefits
Members may be able to transfer preserved benefits to another suitable pension provider. Members should apply direct to HSC Pension Service.
4.4.8 Current member’s annual statements
Current members whose pensionable service has not terminated before NPA have a right to information about the amount of their own and their survivors’ benefits which would be payable, if their service were to terminate, or on their subsequent death.
To facilitate this, and based on the latest information provided by the employer (normally to 31 March in the previous financial year), an Annual Benefit Statement will be made available to members by HSC Pension Service. One statement in a 12 month period is necessary to fulfil our obligations under Disclosure requirements,