Opting out is when a worker decides not to remain part of a workplace pension and asks to leave.
Staff who have been automatically enrolled have the right to choose to opt out within a month of being enrolled. As an employer, you have no right to encourage staff to opt out and any decision to opt out must come directly from them and them alone. Opting out can only take place after automatic enrolment; a member of staff cannot elect not to be automatically enrolled in the first place.
Opt outs must take place within a month of active membership or when staff receive their employers letter to say that they have been enrolled, whichever is later. The opting out process is clearly set out must be followed to the letter.
Here’s how it works:
- Staff need to request an opt out notice from the pension scheme. Only the pension scheme can provide this form. This is to avoid the risk of unscrupulous employers influencing decisions to opt out. In some instances, opt out forms may be available online.
- The worker then completes the form.
- When the form is complete, they pass the form to you. When you receive an opt out form, you need to check that it contains all the information that is required eg. full information about the member of staff; a statement and warning acknowledgement and a section entitled “what you need to know”. The latter section explains in simple terms the impact of the decision to opt out to the employee and reinforces that the decision to opt out must not be influenced by the employer.
- If there is any information missing from this form, you must return it to the staff member who should rectify the situation and resubmit the notice. In a situation where an invalid notice has been submitted, the employee has an additional two weeks to complete the opt out request process; bringing the total to 6 weeks.
- When you set up your pension scheme, you will have outlined to your staff how you will handle opt outs and it is your duty to follow that procedure to the letter in the event of receipt of a valid opt out notice. When you receive a valid opt out notice, you must process the form according to the procedures you have set out and refund any contributions the staff member has made. You have a month to make the refund.
- When a valid opt out notice has been processed it is up to you to inform your payroll department or provider to stop taking contributions from the employee affected.
- You will receive a refund of your contributions directly from the pension scheme provider.
Here are the key points to remember:
- Any decision to opt out must come from the employee and the employee alone.
- Employers cannot issue opt out forms; they must come from the pension scheme provider.
- Employees have 1 month to opt out.
- All payments made by the employee must be refunded within one month of submitting a valid opt out notice.