If an employee informs the pension provider that they wish to leave the scheme within one month of the notification that they're being enrolled, this is referred to as opting out. If they opt out within the one-month window, the employee and employer pension contributions are fully refunded through the payroll. The employer typically receives this refund as a reduction in their pension bill at the end of the following month.
For information about how to process a pension refund in PayFit, please refer to our Help Centre article.
Difference between opting out and leaving a scheme
There is a difference in terminology between opting out of a scheme, and leaving a pension scheme:
If an employee leaves within one month of their notification that they've been enrolled, it's referred to as opting out.
If an employee leaves the scheme later than one month after the notification, it's referred to as 'ceasing membership'. The employee isn't entitled to a refund, they'll be able to access their pension contributions when they reach retirement age.
When does the one-month window start?
The one-month window starts from when the employee receives a written notification that they are being enrolled into the workplace pension. As an employer, you have up to 6 weeks to write to your employee informing them that they have been enrolled. This means you may need to refund more than one month's pension contributions.
Example
You have a new employee who starts on 1st January and meets the criteria to be auto-enrolled. They receive their pension letter informing them of their enrolment on the 10th January. This means they have until 10th February to opt out to receive a full refund of their contributions.
For more information about automatic enrolment letters, please refer to our Help Centre article.
How can employees opt out?
When an employee is enrolled into the scheme, the pension provider will send them an information pack which will contain specific instructions about how to opt-out of the scheme.
The opt-out process may differ slightly between pension providers, but most pension providers must be notified directly by the employee that they wish to opt out.
What if the employee wants to opt out before I enrol them?
Even if you know your employee doesn't want to be in the workplace pension scheme, you must still enrol them and take pension contributions. To meet your legal obligations as an employer, the employee must achieve 'active membership', which can only happen when the pension provider is notified that the employee has been automatically enrolled.