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Opting out and opting in

Automatic enrolment is not a compulsory pension and therefore an employee can opt out. Opting out is when the employee does not wish to join the qualifying scheme on offer and therefore will not receive any of the benefits.

We must remember that each employee that meets specific criteria is opted in and therefore the opt out means any premiums that have been collected and any member benefits that have accrued will be reversed.

An important part of opting out is the opt out period.

For contract based arrangements this period is one month from the date in which the job holder is sent the terms and conditions concerning active membership or the date on which the member receives written information about the enrolment process.

It is not possible for eligible jobholders to opt out by simply declining to become scheme members in the first place. Active membership must have commenced and the opt out period is therefore in force for one month.

During this opt out period the employee can give the employer the opt out notice which must be obtained from the qualifying scheme as the employer is not allowed to have these forms on their premises.

The opt out notice is an official document and must take a prescribed form which can be an email. It must contain the following information:-

  • Job holders full name
  • Employers name
  • Jobholders NI number or date of birth
  • Job holders signature
  • Date the form was completed.

There must be a section containing the words if you want to opt out of pension saving fill in the form and give it to your employer.

Just above the job holders signature:-

  • I wish to opt out of pension saving
  • I understand if I opt out I wil lose the right to pension contributions from my employer
  • I understand that if I opt out I may have a lower income when I retire.

Finally there must be a section entitled what you need to know which must contain the following statutory statements:-

  • Your employer cannot ask you or force you to opt out
  • If you are asked or forced to opt out, you can tell the pension regulator. See www.gov.uk
  • If you change your mind, you may be able to opt back in. write to your employer if you wish to do this
  • If you stay opted out your employer will normally put you back in pension savings in around three years.
  • If you change job, your other employer might put you into pension savings, now or in the future.
  • If you have another job, your other employer might put you into pension savings now or in the future. This notice only allows you to opt out of pension savings with the employer you name above. A separate notice must be filled out and give to any other employer your work for, if you wish to opt out of that employers pension savings as well.

Once an employer has received an opt out notice they are required to refund all scheme contributions less tax with a month of receiving of the opt out notice or the final date of the second pay reference period following receipt of the opt out notice.

Opting in

Whilst all job holders and eligible jobholders will automatically be enrolled, non-eligible job holders may join on a voluntary basis by giving the employer and opt in notice. Entitled workers must present a joining notice but do not have to be enrolled in the qualifying pension scheme.

For an opt-in or joining notice to be valid, it must meet the following criteria.

  • It must be in writing
  • It must be signed

The employer is not required to accept an opt in request from a worker who has previously opted in during the past twelve months but subsequently opted out.

Opting in by job holders:-

The enrolment date will be the first possible pay period. Enrolment must take place within one month of the enrolment date. A complication can arise if the employer is using postponement. If the deferral date falls after the enrolment date, the employer is required to dis-apply postponement for this jobholder.

Joining by entitled workers

Having received a valid joining request the employer is required to liaise with the pension scheme that is to be used and arrange for contributions to be deducted from the workers pay and the pay the scheme concerned.

The employer must also provide the personal information required such as:-

  • Name
  • Sex
  • Date of birth
  • Home address
  • NI number
  • Workplace address
  • Work email
  • Home email
  • Gross earnings for any given pay reference period
  • Value of contributions to be paid.

Once the membership has commenced the employer must continue to monitor the member in order to check if he or she becomes an eligible job holder and subject to the auto enrolment regime.