Redundancy occurs where an employee’s job ceases to exist and the employee is not replaced. Neither an employer or an employee can continue making pension contributions to an occupational pension scheme following an employee’s redundancy. However, redundancy raises a number of other issues for pension scheme members in the private sector. Some of these are considered below.

Preserved benefits
The Pensions Act contains a level of protection for employees who are made redundant, requiring schemes to provide a basic minimum level of benefit in certain circumstances. This is known as a “preserved benefit”. The Act provides that a pension scheme member who leaves service having satisfied a “vesting period” of two years’ qualifying service is entitled to a preserved benefit. Where a member has transferred their rights from a previous employer’s pension scheme, the length of membership in that scheme reduces the vesting period. Even where a member has less than two years’ service, however, the position should be explored with the scheme trustees as some schemes have a shorter vesting period than two years. 

Where an individual has less than two years’ service there is no statutory entitlement to a minimum level of retirement benefit. On leaving service, members in this situation are generally entitled to receive a refund of their own contributions only (employer contributions generally revert to the employer). Where a member opts for a refund of contributions, standard rate tax must be deducted. 

Transfer options
An employee who is made redundant has, in general, four options in relation to their pension rights:

• leave the benefits in the scheme and take them at retirement;
• transfer the value of the benefits to the scheme of a new employer;
• transfer the value of the benefits to a buy out bond; or
• transfer the value of the benefits to a PRSA (only where the member has less than 15 years’ service).

Defined benefit scheme members should note however that where a scheme is underfunded, a reduced transfer value will almost certainly be paid out of the scheme.

Early retirement
Members may wish to consider early retirement if they are made redundant.  Many schemes allow for employees to take early retirement from age 50 with the consent of the employer and the scheme trustees, and some schemes may provide augmentations or waive reductions in the event of early retirement on the grounds of redundancy.  It has, however, become quite common for the trustees of defined benefit schemes to refuse early retirement as the Pensions Act provides that where a scheme fails the funding standard, the trustees can refuse consent to early retirement in order to protect the benefits of other members of the scheme. 
 
Disclosure requirements
Members leaving a pension scheme must be provided with specific information in relation to their entitlements.  The information to be provided depends on whether the scheme is a defined benefit scheme or a defined contribution scheme, and also whether or not the member has an entitlement to a preserved benefit.  The information must be provided as soon as practicable following the member’s leaving service and, in any event, no later than two months from that date.