For those of us that remember the old SERPS (State Earnings Related Pension Scheme) – you’ll know there was an option to opt out of it and make your own pension arrangements.
Well this is still the case, however the process of “opting out” is a little different.
With Auto Enrolment, everyone that is entitled to Auto-Enrolment must by default be auto enrolled in to a scheme, regardless of whether they want to or not.
If a staff member then chooses to opt out, they will have to fill in the Opt-Out Notice form given to them by the Pensions Provider when they receive their pensions pack and this would need to be completed within 1 month of the policy starting.
Why so complicated?
The Pensions Regulator has designed this process to ensure the employee has full control over the decision to opt out and is not being influenced by the employer in any way. This means an employer cannot use opting out as a point of leverage when offering employment.
As an employer, any encouragement to staff (or potential staff) to opt out will be could considered an ‘inducement’ and is punishable with a heavy fine.
So I couldn’t offer my employees a pay rise and encourage them to take out a pension themselves instead?
That’s right. It’s a big NO-NO I’m afraid. Whilst it might be financially better for the business and would certainly reduce the workload, employers can be fined up to £5,000 per person for breaching inducement rules.
What’s more, the Pension Regulator will be cross checking its records with HMRC’s RTI (Real Time Information) database to make sure all those that are eligible are accounted for.
Other examples of inducement include asking some to opt-out in exchange for:
• An extended or renewed contract in the case of a short-term worker
• A one-off payment
• A higher salary level
• A promotion
In short, any encouragement to your employees to opt-out could land you in very big trouble so we recommend against it in the strongest terms.
Ongoing “Opt-Out” responsibilities
One last thing we need to mention on the topic of Opting-Out is your responsibility as an employer to anyone who has opted out. All “opted-out” employees must be automatically re-enrolled every 3 years and they must then chose to opt out once more if they wish to do so.
We hope you found this useful, stay tuned for next week! For more information on any of the topics discussed or to find out a bit more about Credius and how we can help with auto enrolment visit our website www.credius.com/autoenrolment or you can contact us directly at firstname.lastname@example.org or call on 020 7562 5858.
Next time: Contractual vs Auto Enrolment