What is Opting Out?
The Difference Between Opting Out and Leaving The Scheme
When Does The 1 Month Window Start?
How Can Employees Opt Out?
What If I Know My Employee Wants To Opt Out Before Enrolling Them?
This article will explain what opting out of your pension scheme means, the difference between opting out and leaving the scheme and also how to manage employees who wish to opt out.
What is Opting Out?
Opting out is the when an employee informs their pension provider that they wish to leave the pension scheme within 1 month of being enrolled. If they inform the pension provider that they want to leave the scheme within this 1 month window then the pension provider will refund the contributions that have been upload.
This refund will go to the employer and it is then the employers responsibility to return the employee contributions back to the employee via the next payroll. To learn how to do this on PayFit please read this article - How to: Add a Pension Refund
The Difference Between Opting Out and Leaving The Scheme
The difference simply comes from at which point the employee decides to leave the pension scheme.
If the employee leaves within the first month after being enrolled then this is known as opting out.
If the employee leaves the scheme after the 1 month window then this is typically known as 'ceasing membership'. If the employees ceases membership after the 1 month window then they are not entailed to a refund and they will be able to access the contributions when they reach retirement age.
When Does The 1 Month Window Start?
The 1 month window starts from when the employee receives a written notice 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.
To read more about Pension Letters please head to this article - Auto-Enrolment: Pension Letters.
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 if they wish to receive a full refund of their contributions.
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 of how to opt out of the scheme.
The opting out process may differ slightly between pension providers but the majority of pension providers must be notified directly by the employee that they wish to opt out.
We recommend that you inform employees that they will need to contact the pension provider directly, as opposed to informing you as the employer, if they wish to opt out. As this way there is less risk of an opt out notification being missed and the 1 month deadline passing.
What If I Know My Employee Wants To Opt Out Before Enrolling Them?
Even if you know your employee does not want to be in the workplace pension scheme you must still enrol them and take at least 1 months contributions. If the employee does not have at least 1 months contributions uploaded to the pension provider then you would not be meeting your auto-enrolment duties as an employer.