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Opting out of a workplace pension

  • Blog
  • 18 April 2017

All employers have to enrol their eligible staff into a workplace pension by 2018. But what should you do if your employees want to opt out of the scheme you provide them? This blog aims to explain.

Opting out of a workplace pension

Explaining auto enrolment and opting out

Auto enrolment is a government initiative that makes it compulsory for you, the employer, to automatically enrol your staff into a pension scheme. You can read more about it in our guide, How do I sign up my employees to a workplace pension?

However, while auto enrolment is essential, it doesn’t mean your staff have to stay in the scheme you provide them. They are free to leave and opt out, if necessary.

Why my staff might want to opt out

There are different reasons your staff might choose to opt out of your pension scheme. This includes:

  • Their financial circumstances change and they can’t afford to make contributions to a pension
  • They prefer to get a pension scheme with another provider
  • They leave your company and wish to transfer their contributions elsewhere

When can my staff opt out?

Once you enrol your staff into your chosen pension scheme, it’s important that you provide them with the required enrolment information.

They can only opt out once they have become an active member of your pension scheme and been given this information. This is to ensure they have everything they need to know the benefits of enrolment, so they can think carefully before deciding to opt out.  

How can my staff opt out and what should I do?

To opt out, your employee must give you a completed opt-out notice form. The notice should be provided by your pension scheme provider.

The employee will need to correctly complete and sign the opt-out notice, before they return it to you. Alternatively, the pension provider might allow your employee to opt out online via their company website.

It’s important to mention that you should only accept valid opt-out notices from employees, which include all the required information. If an employee provides you with an invalid opt-out notice, you should let them know.

After receiving a valid opt-out notice, you should have a process in place to quickly and efficiently end the employee’s membership of your pension scheme. This includes:

  • Notifying your pension scheme of the opt out
  • Stopping the payments the employee is contributing
  • Refunding payments to your employee

It’s important that you keep a record of the employee’s opt-out date. This is because you will be required to re-enrol the employee at a later date, which is usually three years. This is to accommodate changes in an employees personal or financial circumstances.

How soon should my staff opt out after enrolment?

To meet government legislation, every employee has a period of one month to opt out of a company pension scheme after they’ve being enrolled. 

If staff opt out within one month of being enrolled, they will get back any money they have contributed. However, if they opt out more than a month after enrolment, they might not be able to get their payments refunded. If this is the case, contributions will stay in their pension until they retire.

The opt out period of one month, however, can be extended to six weeks if an employee provides you with an invalid opt-out notice.

How we can help with workplace pensions

There can be a lot to know when it comes to providing a workplace pension for your staff, from finding the right scheme that meets auto enrolment requirements to being prepared if employees decide to opt out. To help, FSB provides members with its own workplace pension service.

This includes access to:  

  • Full support and guidance with a dedicated freephone helpline
  • Online pension information, education and admin tools for you and your employees
  • The ability to transfer pensions if an employee leaves your company

If you would like to find out more about the service, please visit our FSB Workplace Pensions page or speak to our dedicated team.

FSB Workplace Pensions from the FSB

With expert advice and guidance from a leading provider, it's one of the most popular FSB Member Benefits.

Find out more