Opting out before being auto enrolled

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Got an employee whining at me about auto enrolment, claiming that they can sign a declaration instructing the employer not to enrol them in the pension scheme.

As far as I was aware, eligible employees must be enrolled before they can opt out.

Is he correct?

Replies (83)

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By acceje
12th Jun 2024 11:35

No he is wrong - you have to enrol them in a pension scheme if they are eligible. This was a question that was asked yesterday on a NEST webinar.

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By Sandnickel
12th Jun 2024 11:57

It's also my understanding that they need to be enrolled. The opt out has to be a "positive action" by the employee to prevent unscrupulous employers circumventing their responsibilities.

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Cherry
By cherrytelevision
12th Jun 2024 13:04

As others have said he is wrong. If he opts out quickly enough (I can't remember how quickly - Google it) then he will be able to recover the contributions, so he should stop moaning.

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Cherry
By cherrytelevision
12th Jun 2024 13:04

As others have said he is wrong. If he opts out quickly enough (I can't remember how quickly - Google it) then he will be able to recover the contributions, so he should stop moaning.

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DougScott
By Dougscott
12th Jun 2024 13:10

I may be mis-remembering this but I thought there was something like a three month period from a new employee being enrolled into the employer scheme during which the employer doesn't need to make contributions and the employee could exercise their right to "opt out"? I also believe the employee has to "opt out" every three years to maintain their "opted out" status?

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Replying to Dougscott:
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By FactChecker
12th Jun 2024 13:49

On your first question: as per Neil's response on the question of the UPTO 3 months (not a fixed period) of a Postponement option. Note that, if invoked by ER, this has its own set of documentation that must be issued to EE with associated deadlines for so doing.

On your second question: it's not strictly true that the EE has to opt-out every 3 years (if they wish to maintain that status) - it's that the ER has to re-check all the then current EEs for whether they need to be auto-enrolled, which is akin to a repeat of the process when they first did this. If as a result of that the opted-out EE becomes auto-enrolled (which is quite feasible), then that EE can once again opt-out. BUT, again, they can't simply pre-notify their desire to remain opted-out.

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By neiltonks
12th Jun 2024 13:11

I agree with all the above. Section 9 of "The Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010" requires the jobholder to have been auto-enrolled before they can provide an opt-out notice.

The three month postponement is at the employer's discretion but it postpones auto-enrolment, so the jobholder can't opt out during it as at that point they haven't been auto-enrolled so they don't meet the requirements.

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Replying to neiltonks:
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By FactChecker
12th Jun 2024 13:40

Definitely the two most correct answers ... but worth a minor additional point:

Auto-rolling someone isn't precisely the same thing as taking a deduction from them for their first contribution ... the former has to happen before the latter, but in sequence. Most employers and payroll systems, in order to keep things simple, elide those two actions into a single 'thing' ... so the first time that the EE is aware of being auto-enrolled is when they receive the letter AND the payslip.
But, with monthly payrolls and with very careful timing, it is *possible* to auto-enrol someone with sufficient notice for them to respond by opting-out before that first payrun has been processed - so no initial deduction.
[Note: this is not a recommendation - it not only relies on tight timing and the employee starting on a convenient date to facilitate the timescale, but if the ER explains what they're doing to EE then that could be portrayed as encouragement to opt-out - which is illegal!]

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By Barbara G
12th Jun 2024 13:37

If the employee opts out within 30 days of enrolment (quoted as 30 days by some schemes, one month for others. To be on the safe side go with 30), then any pension contributions already deducted can be refunded. After the expiration of 30 days the employee can leave the scheme at any time, but any contributions already deducted will remain in the scheme until retirement or transfer to another scheme.

Opting out isn't difficult, but you still need to enter him into the scheme before he can opt out. It's your legal obligation as an employer. So tell him to stop whining and count himself lucky to have a job.

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Replying to Barbara G:
the sea otter
By memyself-eye
12th Jun 2024 15:45

..or tell him that AE is not going to give him anything like the pension most folks think it will.

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Replying to memyself-eye:
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By AdamJones82
12th Jun 2024 19:57

Giving pension advice when not regulated...sure...ok

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Replying to AdamJones82:
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By lionofludesch
13th Jun 2024 06:49

I can't understand why anyone would turn down the 3% employer contribution but it's their choice to be paid less than their colleagues .

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Replying to lionofludesch:
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By alejandra
13th Jun 2024 09:08

Sadly sometimes they need their 5% contribution in their pockets now, instead

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Replying to alejandra:
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By lionofludesch
13th Jun 2024 09:20

alejandra wrote:

Sadly sometimes they need their 5% contribution in their pockets now, instead

It's not 5%.

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Replying to lionofludesch:
By Ruddles
13th Jun 2024 09:28

lionofludesch wrote:

It's not 5%.


If the employer is paying 3%, yes it is.
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Replying to lionofludesch:
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By C Graham
13th Jun 2024 09:31

5% employee 3% employer - as min.

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Replying to C Graham:
By Ruddles
13th Jun 2024 09:50

To avoid any confusion, total min is 8%, of which at least 3% is payable by employer. In other words, employer can pay up to (or more than) the full 8%, usually but not necessarily involving salary sacrifice.

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Replying to Ruddles:
RLI
By lionofludesch
13th Jun 2024 10:01

Ruddles wrote:

To avoid any confusion, total min is 8%, of which at least 3% is payable by employer. In other words, employer can pay up to (or more than) the full 8%, usually but not necessarily involving salary sacrifice.

Less tax relief, which everyone seems to have forgotten about.

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Replying to lionofludesch:
By Ruddles
13th Jun 2024 10:52

lionofludesch wrote:
<

Less tax relief, which everyone seems to have forgotten about.

Explain?

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Replying to Ruddles:
RLI
By lionofludesch
13th Jun 2024 11:04

Ruddles wrote:

lionofludesch wrote: <

Less tax relief, which everyone seems to have forgotten about.

Explain?

You can't buy a box of cornflakes for the kids' breakfast with your tax relief.

It'll never hit your take-home pay.

Seriously, I shouldn't need to explain that.

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Replying to lionofludesch:
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By C Graham
13th Jun 2024 11:10

tax and NI savings higher earners - certainly enough for cornflakes. Ditch the kids and you'll be richer too.

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Replying to lionofludesch:
By Ruddles
13th Jun 2024 11:14

lionofludesch wrote:

Ruddles wrote:

lionofludesch wrote: <

Less tax relief, which everyone seems to have forgotten about.

Explain?

You can't buy a box of cornflakes for the kids' breakfast with your tax relief.

It'll never hit your take-home pay.

Seriously, I shouldn't need to explain that.


Unless your 'less tax relief' comment was actually a response to a comment other than the one quoted you're not making any sense
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Replying to Ruddles:
RLI
By lionofludesch
13th Jun 2024 11:32

Ruddles wrote:

lionofludesch wrote:

Ruddles wrote:

lionofludesch wrote: <

Less tax relief, which everyone seems to have forgotten about.

Explain?

You can't buy a box of cornflakes for the kids' breakfast with your tax relief.

It'll never hit your take-home pay.

Seriously, I shouldn't need to explain that.

Unless your 'less tax relief' comment was actually a response to a comment other than the one quoted you're not making any sense

Here's alejandra's original assertion, for your reference.

"Sadly sometimes they need their 5% contribution in their pockets now, instead."

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Replying to lionofludesch:
By Ruddles
13th Jun 2024 12:34

Which has got nothing to do with the discussion on minimum contribution rates, salary sacrifice etc and everything to do with whether the employee joins the scheme or not. In other words, your comment re 'less tax relief' was a non-sequitur to the comment quoted.

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Replying to Ruddles:
RLI
By lionofludesch
13th Jun 2024 12:50

Ruddles wrote:

Which has got nothing to do with the discussion on minimum contribution rates, salary sacrifice etc and everything to do with whether the employee joins the scheme or not. In other words, your comment re 'less tax relief' was a non-sequitur to the comment quoted.

If you say so, Ruddles........

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Replying to lionofludesch:
By Ruddles
13th Jun 2024 13:04

I do. Because whether the employee contributes theirself or whether all contributions are instead met by the employer via salary sacrifice the tax relief is the same. So "less tax relief" makes no sense.

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Replying to Ruddles:
RLI
By lionofludesch
13th Jun 2024 13:14

Ruddles wrote:

I do. Because whether the employee contributes theirself or whether all contributions are instead met by the employer via salary sacrifice the tax relief is the same. So "less tax relief" makes no sense.

If only that was the point alejandro had made.

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Replying to lionofludesch:
By Ruddles
13th Jun 2024 17:01

Why would they? They were making the point that some would prefer to have the cash now rather than lock it away in pension. Which has absolutely nowt to do with the discussion that followed.

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Replying to Ruddles:
RLI
By lionofludesch
13th Jun 2024 17:27

Ruddles wrote:

Why would they? They were making the point that some would prefer to have the cash now rather than lock it away in pension. Which has absolutely nowt to do with the discussion that followed.

I can't be responsible for discussions that follow my posts. If they drift off topic, it's nothing to do with me.

The point was that the 5% pension wouldn't turn up in their pay packet.

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Replying to lionofludesch:
By Ruddles
13th Jun 2024 18:26

But the only reason that the discussion drifted off topic was that your comment at 9:01 had nothing whatsoever to do with the point of my comment that you quoted.

Admittedly, my comment was itself, with hindsight, of little relevance to your “not 5%” comment. But in my defence I hadn’t realised the point you were trying to make and assumed you had simply mixed up your 5% and 3%

As you like to say- [chuckle]

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Replying to Ruddles:
RLI
By lionofludesch
13th Jun 2024 19:29

Ruddles wrote:

But the only reason that the discussion drifted off topic was that your comment at 9:01 had nothing whatsoever to do with the point of my comment that you quoted.

Admittedly, my comment was itself, with hindsight, of little relevance to your “not 5%” comment. But in my defence I hadn’t realised the point you were trying to make and assumed you had simply mixed up your 5% and 3%

As you like to say- [chuckle]

9.01? Why are you still on winter time? Are you in Narnia?

As you say, your comment had little relevance. Pretty much everyone on here would know it's 8% with a minimum 3% from the employer.

But I'm glad that's cleared up.

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Replying to Ruddles:
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By bettybobbymeggie
13th Jun 2024 14:26

Ruddles wrote:
contributions are instead met by the employer via salary sacrifice

If it's salary sacrifice it's not met by the employer though, is it?

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Replying to bettybobbymeggie:
RLI
By lionofludesch
13th Jun 2024 14:39

bettybobbymeggie wrote:

Ruddles wrote: contributions are instead met by the employer via salary sacrifice

If it's salary sacrifice it's not met by the employer though, is it?

[chuckle]

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Replying to bettybobbymeggie:
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By C Graham
13th Jun 2024 14:50

sal sac IS employer contribution - the employee simply agrees to give up part of the contractual salary back to the employer who then agrees to make the pension contribution. The whole payment is therefore considered an employer contribution.

The diff between that and relief at source contributions are the savings of NIC on both sides. Which is why it is now the most popular method.

Relief at source is also a real pain for higher rate tax payers who have to claim back the remaining 20% tax relief through SA or via the portal.

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Replying to C Graham:
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By kim.shaw-and-co.com
17th Jun 2024 13:48

C Graham wrote:

or via the portal.

Do elaborate .... how does this work in practice ?

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Replying to kim.shaw-and-co.com:
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By C Graham
17th Jun 2024 14:31

the HMRC portal - for those not doing SA

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Replying to C Graham:
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By kim.shaw-and-co.com
17th Jun 2024 14:52

C Graham wrote:

the HMRC portal - for those not doing SA

.... and where on that "portal" is it possible to claim higher rate relief on RAS contributions ? Are you talking about asking for a change in tax code through a personal tax account ?

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Replying to kim.shaw-and-co.com:
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By C Graham
17th Jun 2024 15:51

no. You mistake portal for interactive forms. the HMRC portal has all the contact details to make a claim if not doing it through SA.

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Replying to C Graham:
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By kim.shaw-and-co.com
17th Jun 2024 16:50

C Graham wrote:

no. You mistake portal for interactive forms. the HMRC portal has all the contact details to make a claim if not doing it through SA.

In other words having to write in or call them.

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Replying to kim.shaw-and-co.com:
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By C Graham
17th Jun 2024 17:15

yep. A lot of higher rate tax payers still don't have to do SA. Often employees don't even know they have to recover the added relief too. At least Sal sac does away with it plus there's the additional nic savings.

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Replying to bettybobbymeggie:
By Ruddles
13th Jun 2024 16:53

Would you have been happier had I said "contributions are instead effectively met by the employer via salary sacrifice"?

Or

"contributions are instead paid by the employer via salary sacrifice"?

From a mechanical point, your observation is a valid one. My point was simply that the tax position is ultimately the same regardless of who meets the 8% minimum contribution level.

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Replying to lionofludesch:
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By Rozzi Rainbow
17th Jun 2024 10:28

I understand what you're getting at - pension contributions attract tax relief, so the pension contribution is made net of tax (or the PAYE deduction is lower when pension contributions are made, depending on whether it's RAS or NPA).

So the overall affect on net pay is 4%. That's how my NEST pension works anyway.

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Replying to lionofludesch:
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By VCG
13th Jun 2024 13:57

You may not “understand why anyone would turn down the 3% employer contribution” but, trust me, I do payroll for children’s nurseries and many can’t afford to have any of their pay deducted.

Easy for you to say but many people are living on the breadline.

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By Barbara G
12th Jun 2024 14:01

When the employee mentions "signing a declaration instructing the employer not to enrol him" I wonder if he is getting confused with the procedures for leaving the scheme, rather than opting out?

To opt out the employee himself will need to contact the pension company. If he is eligible for auto-enrolment at assessment, you will need to put him into a qualifying scheme before he can opt out.

If, after the expiration of the opt out period (30 days or one month), he wishes to leave the scheme, he only needs to put his request to his employer in writing. The employer then contacts the pension company to flag the employee as a leaver. However, as previously mentioned, after the expiration of the opt out period he won't be entitled to the refund of contributions already deducted.

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By adam.arca
12th Jun 2024 14:27

I’ve always found that saying something like this works: “it wouldn’t be called auto enrolment if you could opt out before enrolment.”

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Replying to adam.arca:
By Ruddles
12th Jun 2024 21:10

Similarly, you can’t opt out of something if you’re not already in it.

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Replying to Ruddles:
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By FactChecker
12th Jun 2024 22:44

hmm ... depends on what you're opting-out from.
I guess the EE giving grief to OP had assumed that they could opt-out of the 'auto' aspect of enrolment - which wouldn't require one to be in something (other than employment).

However the rules regarding AE are clear ... the enrolment comes first, and only afterwards is there an option to opt-out.

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Replying to Ruddles:
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By adam.arca
13th Jun 2024 13:54

Ruddles wrote:

Similarly, you can’t opt out of something if you’re not already in it.

Good point. I’ll add that to my armoury.

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By B Roberts
12th Jun 2024 15:47

Ok, here is my experience (not to be taken as advice in any way!).

In my opinion, this is another example where common sense should prevail.

As part of my previous role I was responsible for a payroll of 150+ employees with a number of starters and leavers each month.
It was a complete nightmare to set somebody up on payroll, for them to opt-out, and then to recover the payments (there also seemed a correlation between those employees who opted out and left the company early in their employment, which added further complications).

After a while, I would ask the employee before setting them up - if they didn't want to be enroled, then I just ensured that there was a signed letter in their file (this was then confirmed by the renewal process).

As far as I am aware, nobody went to jail.

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Replying to B Roberts:
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By FactChecker
12th Jun 2024 16:09

That's not so much 'pragmatic' (even though I understand your perspective) as simply and consciously breaking the law - and taking a gamble on not being caught doing so.
I'm not equating you with a burglar (at least morally), but you were sharing their approach to risk management - as in 'I'll probably never be found out' - so would you accept their equally pragmatic acceptance of penalties if your luck ran out?

FWIW jail-time would be excessive (although it's an available option depending on severity and regularity of the offence), but hefty penalties can be brought into play very easily - and these then grow like topsy if not paid (and unless the 'incorrect' behaviour is demonstrably altered going forward).

Extracts from TPR:
1) "Wilfully failing to put eligible staff into a pension scheme and knowingly providing false information in a declaration of compliance are criminal offences. If we prosecute you, the maximum punishment is two years in prison."
2) "If you don’t comply with a statutory notice you may be sent an escalating penalty notice. This gives you a new deadline to comply, after which you will be fined at a daily rate of £50 to £10,000, depending on the number of staff you have. The fine will continue to grow at the daily rate until you comply with the statutory notice, or until we stop it."

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