Auto-enrolment changed the way employees can save for retirement, and with the state pension age rising to 66 for both men and women, being part of a workplace pension scheme is perhaps more important than ever. However, there are some who will wish to opt out, and when this happens, employers have certain responsibilities. Here we look at what to do to support staff who choose to leave a scheme.
Brief guide to auto-enrolment
Auto-enrolment came into effect in 2012 and was the government’s response to records identifying that fewer than three million people were paying into a pension scheme, which was the lowest number since the records began.
In a nutshell, it means every employer in the UK must provide a workplace pension scheme and enrol staff who are between aged 22 and the state pension age, and earn £10,000 or more, as well as pay into it. Even if an employee would prefer not to be enrolled, the employer must register them; however, the employee does have the choice to then opt out.
Opting out of a pension scheme
On 1st July 2012, laws came into force prohibiting employers from encouraging staff to leave the company’s pension plan. Therefore, if an employee does decide to opt out, a notice will be provided by the pension scheme to avoid any employer involvement. The company must then immediately stop deducting contributions from payroll.
If an employee opts out within a month of being enrolled, they will be due any money paid in to be returned to them. If they choose to leave the pension scheme at a later date, it depends on the scheme’s rules as to whether the member of staff will receive the money, or whether it remains in their pension pot until the employee retires.
It is important to note that the employee can choose to opt in again at any time.
Reasons why employees may want to opt out
A workplace pension scheme is not the only way to save for retirement. An employee may have a private pension or an Independent Savings Account (ISA) already in place and prefer not to contribute to a further plan. Or for some on lower salaries, it may simply not be feasible to contribute part of their salary at that time, despite the benefits and the importance of saving for retirement.
As an employee’s circumstances could change, an employer should automatically enrol again at a later date any staff members who opted out, provided they remain an employee – this is usually done three years after contributions stopped. The employee can then choose to opt out again if they wish.
Advice if staff wish to opt out
Before an employee opts out of a scheme, the company should recommend their staff member seeks specialist and independent advice to ensure they are aware of all the benefits that come from being enrolled into a workplace pension scheme and are able to make an informed decision.
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