What is Opting Out?
Opting out is a key part of pensions auto enrolment which stops this new legislation from forcing employees into unwanted pension schemes. Opt out rules give auto enrolment a level of nuance that means it is adaptable to the requirements of individual employees; however it adds another layer of complexity to the new regulations.
Automatically enrolled employees and employees who have been enrolled following an opt-in have the right to opt out of membership to a pension scheme.
An employee has one calendar month to opt out either from when they were informed of the scheme or when they were enrolled on it
(depending which is the later of the two dates).
It is advised that the event that triggers the opt out period is when you inform your employee because then the opt out dates can be more easily entered in to the enrolment notice. As a result, this means that employees must first be enrolled and then opt out of the scheme and it is not possible for employees to express their wish to opt out in advance.
Opt out rates have been lower than expected whilst the larger businesses and organisations have been staging and it remains to be seen what level occurs in smaller businesses.
How to Opt Out?
For an employee to opt out, they need to obtain an opt out form or notice from the pension scheme and complete it before passing it on to you. It is then required of you to contact the scheme and inform them of your employee’s decision, they can then give refunds for any contributions that have been taken from their earnings.
Rather than opting out by paper, employees can speed up this process by alternatively opting out online or over the phone. With a paper opt out forms have to be validated manually and checked to ensure that is received with the month long opt period. This is compared to phone and online opt outs which take a matter of minutes to complete. Alternative opt out methods are far more efficient, therefore paper opt outs should be avoided.
What is Opting In?
Employees that have not been automatically enrolled have the right to opt in. Employees who either don’t meet the criteria for pensions automatic enrolment or are in their postponement period may opt in to a pension scheme by completing a form, paper or online. You then need to confirm they are a job holder in your business and their enrolment date will be the first day of their pay reference period after you have received their notice.