Eligible employees have the opportunity to opt-out of their employer’s chosen pension scheme.
If you are eligible for Auto Enrolment and considering opting out, you need to be aware of the following important pieces of information:
- You still need to be enrolled along with your fellow employees
Government legislation requires all businesses to enrol all eligible employees in time for their given staging date, regardless of whether or not they intend to opt-out.
- You will notice deductions from your pay packet in the first month after staging.
Once the staging date has arrived, all eligible employees will notice that deductions have been made to their first wage packet. This deduction is supplemented by the employer’s contribution and government tax relief before adding to your pension pot.
- Those who opt out within the opt-out window will be refunded in full
Your first month’s contributions will be repaid in full in your next pay packet, providing you have informed your designated company contact of your decision to opt-out, in writing, before the deadline. This reimbursement only includes your own wage; you will not be refunded your employer’s contribution nor the tax relief.
- If you miss the opt out window, you will not be reimbursed
You must ensure that your decision to opt out of the company’s chosen pension scheme has been submitted in writing. You will be given an opt-out form to complete and sign, and informed of the company’s deadline for opt-out notices. Some pension schemes enable this money to be refunded at a later date; however, for many schemes, failure to return this notification will result in the deducted amount remaining locked into your pension pot until your retirement.
- Opt-outs usually last for three years.
Once you have opted out, this arrangement normally stays in place for three years. At the end of this period, if you are still an eligible employee, your employer will be required to automatically enrol you. This regular review period encourages you to consider whether the time is now right for you to begin putting money aside for your future. If this is not the case, and you are still not ready to begin accruing benefits for your retirement, you can opt-out for a further three years.
- You can change your mind at any time.
If you decide that you are ready to opt-in, you can speak to your employer, who will pass this information on to the payroll manager or bureau.
- Opting out will mean that you miss out on retirement benefits in the future.
You should take time to consider the implications of opting out of a pension scheme. Retirement may seem a long way off and therefore irrelevant to you now. Or maybe you are close to retirement and feel that it isn’t worth losing pay for what will seem like a very small return. Keep in mind that opting into AE will give you the additional benefit of your employer’s contribution and government tax relief which you lose out on once you opt out. There are often other benefits included in the pension scheme, which will be made clear in the information pack provided. You should also be mindful of the need to put money away for a comfortable and happy retirement.
- Your employer’s chosen pension scheme should provide more information
You should receive a booklet or information pack, outlining the benefits of your company’s pension scheme. This will help to inform your decision regarding opting out. If you have any doubts or questions, ask. Your designated pension professional will be able to discuss this with you.