All employers have to automatically enrol their eligible employees into a workplace pension scheme. However, it is important to note that an employee can decide to opt out of a pension scheme if they do not want to take advantage of this.
This decision can be made when the employee is first offered the opportunity to be automatically enrolled or they could decide at a later date.
Fortunately, the latest statistics show that the rate of employees opting out is far lower than was initially anticipated. This is positive as it shows that the government initiative to help more people start to plan for retirement has been welcomed.
However, employers need to have systems in place to keep track of anyone that does decide to opt-out. Plus employers need to be clear about the rules as outlined in the pension’s reform. Below we show when the right to opt-out applies:
- Eligible employees may choose to opt-out after they have been automatically enrolled.
- Non-eligible employees who have opted in may choose to opt-out after they have been enrolled.
- Workers who have been enrolled under contractual enrolment and entitled workers who have asked to join a scheme do not have the right to choose to opt-out. If they want to leave the scheme, they must cease membership in accordance with the scheme rules.
It is important that employers give their staff sufficient information about the effect of auto-enrolment so they can make an informed choice. Employers must also keep accurate records of membership to the pension scheme. There are specific timescales when employees can decide to opt-out of an active pension membership scheme.
By having a good payroll management system in place you can ensure that processes are in place to help you as an employer comply with all the auto-enrolment legislation and also make the necessary changes when employees opt-out.
We support clients with their payroll and are guiding them through the necessary changes. For more information about how we can help you email