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AE - Employee wants to opt down?

Is there such a thing?

I have a client whose employee wants to decrease their contributions when the increases come into effect in April. My question is, would the employer still need to contribute their employer contribution? Is this an option for employees? I’m sure it’ll come up again with other clients and I can’t find anything on TPR’s website about this. Help!

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By NYB
20th Feb 2018 15:38

You can't opt opt down. It would defeat the purpose - everyone would drop down. The rates are the legal rates. You can adjust rates to suit yourself as an employer over and above the minimum as can the employee (with the employers approval). An employer is not bound to increase his portion because an employee may want it done. Of course the employee can opt out with no influence from the employer.
So the answer to your question is rather immaterial as its a no choice answer.

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20th Feb 2018 15:55

I disagree.

There are minimum levels specified for the total contribution and for the employer's, but not for the employee's contribution. From April, the minimum contributions are 5% in total with 2% from the employer. If the employer were prepared to contribute 4%, the employee would only need to contribute 1% to meet the total of 5%.

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20th Feb 2018 15:59

Yes - if the employer will take up the slack and the total contribution is at least 5%.

Which more than often won't be the case.

The employer is much more likely to say "Hurrah! That saves me money too."

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20th Feb 2018 16:49

Opting down is a genuine 'thing'. It means that the employee opts to pay a reduced contribution (as an alternative to leaving the pension altogether.)

If they do this, they are no longer members of a "qualifying scheme" for auto-enrolment purposes, because the minimum contribution isn't being made. This in turn means that they'll have to be auto-enrolled into a qualifying scheme again at the next cyclic re-enrolment exercise.

Not all pension schemes allow this approach (I don't know which do, you'd have to ask them!), and even if the scheme allows it, there's no obligation on employers to allow their workers to do it.

If an employer does allow this, they're then under no obligation to make any contribution at all (because it's not a qualifying scheme, so the minimum contribution rules don't apply).

The usual caveats apply regarding employers "encouraging" staff to take this route - anything which could be seen as encouraging workers to leave a qualifying scheme is forbidden!

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to neiltonks
20th Feb 2018 17:20

Soooooo.....in other words there's no such thing as "opting down" for AE, because as other posters have said, the minimum AE contributions must be made and unless the employer makes up any shortfall by the employee then it's not AE. Or am I missing something?

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to neiltonks
20th Feb 2018 17:31

Whilst not disagreeing with anything Neil says, I took the general thrust of the OP to be that the client wanted to pay nothing, whilst expecting the employer to keep chipping in the full whack.

Unfortunately, that's not the deal on offer.

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to lionofludesch
20th Feb 2018 23:30

Well, the employer could continue to contribute if they chose to, but I don't see why they would if the employee has chosen to pay nothing! The employer certainly has no obligation to pay anything.

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to neiltonks
21st Feb 2018 12:12

Wouldn't a clearer way of describing "opting down" be to say "opting out and then voluntarily contributing outside of AE". Otherwise, the employer is potentially in breach of AE rules if they don;t pick up the shortfall.

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21st Feb 2018 11:11

Thank you for all the comments.
My client's employee would like to continue paying the 1% and not increase their contribution in April. So my client wants to know if they need to pay the difference or nothing at all if the employee ‘opts down’.
It would make sense that if an employee 'opts down' they wouldn’t be qualifying under AE. It's also quite possible some pension providers won’t allow for this as it wouldn’t be worth their while and it may cause problems with pension file submission.

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to Counting numbers
21st Feb 2018 11:28

watching thread with interest - anyone know if Nest supports this?
not heard of this at all before now - surely the employer would have to "offer" this to all employees, if taking up the shortfall, - would be a benefit if just one employee?
I'm gritting my teeth when April comes along - have reminded all staff of the increases, but bracing myself for the backlash when the rates increase!

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to ohwhatnow
21st Feb 2018 12:10

The employer need - indeed must - do nothing. Getting involved with influencing employees one way or the other is the road to disaster.

I'd just tell the employee that he can keep paying his 1% - if the scheme allows it - but the employer won't be bothering.

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14th Mar 2018 11:26

Shall we stop with the phrase "opt down" which doesn't exist.
The employee can choose to opt out and make voluntary contributions to which the employer does not have to match or even contribute.

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By tom123
to stevenwarboys
20th Mar 2018 14:07

My pension provider has just spoken to me on the phone, and this phrase does indeed exist, in their parlance anyway.

We are just deciding what to do, in the event that any of my staff approach after the April increases.

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to tom123
20th Mar 2018 14:23

Hmmmm! It is of course, as stevenwarboys suggests, inaccurate nonsense of a phrase . But I suppose it's a harmless as long as all parties understand what is meant by it.

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By LW64
22nd Mar 2018 10:58

Opt down is the exact terminology.
Where I have people that ask to reduce or stay at 1% as a responsible employer we will match the contribution at current match rates.
Obviously we are not promoting this option but in April , if anyone says that they can't afford the higher rate and want to leave then I will offer it as an option.
As Neil said, they will then be re-enrolled at the higher rate when the re-enrolment window comes around.

I previously posted an FT article last time this was raised:
"The Pensions Regulator has said employers should not tell their staff that they can potentially reduce their minimum contribution rates when rate rises kick in next month.

Some employees will be given the chance to contribute less than the minimum 5 per cent, of which the employer must pay at least 2 per cent, after new the rates are implemented on 6 April.

An option to contribute less does exist, but will only be available on select schemes and may mean the saver will lose the contribution paid by their employer.

Bex Woodley, industry liaison manager at the TPR, said while it was important for employers to improve their client communication when rates go up to ensure people understand the value of their pension and do not opt out, she warned against informing them of this option.

Speaking at an event organised by the Transparency Taskforce in London yesterday (8 February), she said: “We’ve said write to members and let them know the rate changes are happening.

"But it’s absolutely not a statutory requirement that you have to [do that].

“People should be incredibly wary about [telling their staff about lowering their contribution rates] because it could be seen that the sole or main purpose [of doing so] is to induce them to reduce their contributions.

“As indeed, if they reduce their contribution to below the minimum legal requirement, there is a possibility at that point the employer would not pay theirs.

“Our suggestion [would be] when the member joined they would have received a pension pack and in that pack there would have been a line that said they would have the right to reduce their contributions.

“So perhaps, if there is the possibility of doing so, maybe mention it when you get their opt out papers.”

The move will also render the pension non-qualifying, meaning the member will be re-assessed at re-enrolment.

Meanwhile, it is still unclear how the success of auto-enrolment can be measured.

Asked whether opt down rates would be treated as opt-outs for statistical purposes she said she did not think that would be possible.

While TPR does not collect the data, the Department for Work and Pensions does, she agreed with Henry Tapper, founder of the Pension Playpen who was in the audience, that measuring success based on the number of people auto-enroled might not work.

A better way to measure success would be to look at the amount of money put into pension schemes through auto-enrolment, Mr Tapper said.

There has been concern in the industry that cessation rates, where people have not opted out but stopped paying rates at one point, have not been adequately captured by the government, and numbers could match those of opt outs, which would skew success rates."

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23rd Mar 2018 08:24

Fair do's as the beast is a developing entity still new phrases will develop to handle situations which can arise as we progress through its maturity....

or we could just make it up as we go along!

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26th Mar 2018 16:50

Thank you for all the comments and @LW64 for your very comprehensive response. It turns out that NEST isn’t accommodating this opt down or whatever you want to call it approach. I presume it’ll be left to pension providers to deal with.

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to Counting numbers
26th Mar 2018 17:16

I think you'll find NEST will accommodate a change in the mix of contributions. What it won't accept is "opting down", because notwithstanding LW64's comments, it doesn't exist as a possibility within auto-enrolment (AE), even if the phrase is used by some in the pension industry.

At the risk of stating the obvious again; there's an overall minimum contribution required by AE, there is a minimum contribution required from employers, but there's no minimum contribution by employees. Thus, if an employer will only pay the minimum and the employee chooses (not opts!) no to pay the difference between that and the overall minimum then they must cease members of the AE scheme.

That's what LW64's post actually says.

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27th Apr 2018 12:52

I understand that opting down is not an official thing as it moves person out of AE. However, some commenters may not grasp that a few employees will genuinely be unable to afford an extra say £25 per month (and same again next year).
So rather than “opting down”, could they opt out for say half the year? I think Employer’s obligation to re-auto-enrol kicks in after 3 years, but if person asks to rejoin after say 6 months, presumably the Employer must let them back in. And I believe they can repeat that process once every 12 months.

A nightmare for the employer but for a well-organised but cash-strapped employee, might it be a better option that "opting down"?

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By tom123
27th Apr 2018 14:47

I am waiting to see how my staff respond. In manufacturing, it is fair to say I have some staff who are towards the lower end of the payscale.

Several employees were making no contribution under the old rates.

It will be interesting to see if I hear anything over the next week.

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By tom123
27th Apr 2018 14:47

Stupid computer....

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22nd May 2018 09:01

What a sad and sorry state.

The idea of AE was to make sure employees put money away for retirement. Although I see statements that employees cant afford it - if this was a tax increase then he or she would have too.

My concern is that at retirement age a fair chunk of our workers wont have put enough away - just like me , now having to work until I am over 70.

I would like to see AE being made mandatory with no opt out unless Pensions Cap reached.

My brother works in the USA. His contributions are 22% of salary and his employers 20%. He hopes to retire arond 64-65 . I am advised that in New Zealand the combined contribution rate is 17%.

We as a country need to wake up otherwise this timebomb will hit our children and grandchilden.

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