“Government now expects only 15% of workers to opt-out of automatic pensions after early success.”*
You can’t predict exactly which of your employees will opt in or out but you can plan and budget well in advance to safeguard your business from unexpected costs.
Should I Opt In or should I Opt Out? – That’s all that matters to your employees.
Your employees that are eligible may decide to opt out and those not fitting the criteria may exercise their right to opt in. To further complicate matters, eligible employees that choose to opt out can change their mind and choose to re-enrol againat a later date.
The reality is it’s the employees’ personal finances and how much spare income they have that determines who chooses to opt in or opt out of your pension scheme.
Your obligations as an employer, however, won’t change.
Here’s a quick guide to Opting In and Opting Out.
Eligibility Criteria for Opting In or Opting Out:
|From 16-21||From 22 to State Pension Age||From State Pension Age to 74|
|£481 and below||Has right to join pension scheme|
|Over £481 up to £833||Has right to opt in|
|Over £833||Has right to opt in||Automatically enrol||Has right to opt in|
You can see from the table above that even if an employee isn’t automatically eligible to opt in to your pension scheme they can still choose to join and could be eligible from contributions from you.
Employees can choose to opt out of the pension scheme anytime but must complete an ‘opt-out notice’.
- Right to opt-out: You can see from the table above who’s eligible and who has the right to opt in.It’s the employer’s duty to communicate, in writing, all relevant employee enrolment information.
- Opt-out period: employees have one month to decide and provide a valid opt-out notice from the date of auto enrolment. They can change their mind anytime and re-enrol.
- Opt-out notice: requested directly by the employee from the Pension Scheme Administrator to ensure the employer hasn’t ‘incentivised’ the employee to opt out.
- Refunds: givenif an employee opts out within the month of enrolment and employer receives a refund of contributions. Otherwise the money is held in a pension pot until employee retires.
- Ending active membership: employees can chose to leave their contributions invested within the scheme or take a transfer value.
- Choosing to pay contributions below minimum level – the employee has to opt out first, they can re-enrol and reduce their payments below minimum contribution but only if the scheme’s particulars allow it.
- Record keeping – employers must document all communications in writing between you and the employee, pension regulator and pension provider andyou mustkeep records of opt-out notices for four years.
Just as you think you’ve completed the process for an individual you’re obliged to automatically enrol employees back into the pension scheme every three years. The thinking behind this is to give your employee a chance to reconsider their options.
Of course they can chose to opt out again.
Always seek professional advice as pension scheme variations and employee contracts affect rules of opting in and out.
For many employers this is becoming costly and an administrative ticking time bomb but talking to experienced business advisers and tax experts like ourselves will help you with:
- Better understanding and robust planning for Auto Enrolment
- Budgeting for pension contributions and avoiding cutbacks elsewhere
- Easily maintaining compliant records
- Looking at ways to save tax as an employer
- Implementing Auto Enrolment ready payroll software
Call 0141 290 0262 now for a Free Auto Enrolment Assessment to find out how ready your business is for Auto Enrolment.
Until next time