A former employee discovered her £8,000 pension pot had been liquidated after she failed to respond to several pieces of postal correspondence. The loss was enabled by a specific "short service refund" rule that applied to pension schemes active before October 2015.
The legacy of pre-2015 "short service refund" regulations
Pre-October 2015 pension regulations allowed for a mechanism known as a "short service refund" that could effectively wipe out a worker's savings. as reported by Steve Webb, these rules permitted pension schemes to close accounts and return funds to employers if a member had served less than two full years within the scheme.
These specific regulations created a period of vulnerability for employees who moved house or changed jobs during major life transitions. Because the rule was tied to the length of service rather than the amount of money accumulated, even a significant pot could be forfeited if the member did not respond to the scheme's formal notices within a set timeframe.
How 100 percent employer contributions erased the £8,000 pot
The use of salary sacrifice arrangements meant the worker received no refund of her own personal contributions. In this specific case, the employer provided 100 percent of the pension funding, meaning the entire £8,000 balance consisted of employer money.
Under the "short service refund" provisions, when a scheme is closed due to inactivity, the employer is entitled to receive the returned funds. Because the worker had not contributed her own salary to the pot through a sacrifice model, there was no personal capital left to return to her once the scheme was liquidated.
XPS Group's decision to prioritize postal mail over email
XPS Group, the administrator of the pension, defended its reliance on physical mail despite the worker's availability via email. The adminitrator stated that email is often viewed as an insecure method for transmitting sensitive personal information compared to traditional post.
According to a spokesman for XPS Group, the scheme was managed in strict accordance with the legislation and rules in force at the time. The administrator noted that they sent three separate letters to the address on file, but because they received no "return to sender" messages, they assumed the contact information was still valid .
The administrator did, however, acknowledge a failure in their follow-up process. They admitted that when the worker finally contacted them in 2020 to update her address, they should have immediately informed her that her benefits had already been removed from the scheme.
Why the scheme failed to use the worker's known email
A central question remains regarding why the scheme did not attempt to use the worker's known email address to verify receipt of the postal notices. While the administrator cited security and coverage concerns, the worker noted she had maintained the same email address since 2009.
The lack of a digital "safety net"—such as a single email to confirm a change of address or to alert a member of pending account closure—remains a significant point of contention. it is currently unclear if the scheme trustees had the discretion to implement such a multi-channel communication strategy to prevent the loss of member assets.
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