How to handle employees opting out of a workplace pension

When you set up a workplace pension scheme, by law you must enrol all eligible jobholders in your workforce. However, your employees can choose to opt out of the pension scheme if they want to.

If this happens, there are certain things you need to do to make sure you remove them from the scheme as requested. 

On this page, we’ll take you through your duties and obligations when an employee  chooses to opt out of your workplace pension scheme.

Every employee has the right to opt out of the pension scheme, but there’s a limited amount of time in which they can do this. This is known as the opt-out window. 

Once you’ve auto-enrolled a staff member, they have one calendar month to opt out of the workplace pension and get a full refund of any pension contributions made. The opt-out window opens either on the day you give your employees their enrolment information or the day your pension provider gives them the terms and conditions of the pension, whichever is later. 

To opt out of the workplace pension, your employees must give a valid opt-out notice. This is a safeguard to make sure it’s the employee’s decision to opt out, not the employer’s decision.

If you choose Aviva as your workplace pension provider, we’ll give your employees information on how to opt out in the welcome pack we send them. 

If you’re not using Aviva’s workplace pension, your employee will need to get an opt-out form from your chosen pension provider.

When an employee submits an opt-out notice, you’ll need to check that it’s valid. That means making sure the form includes:

• the date it was completed
• the employer’s name
• the employee’s full name
• the employee’s National Insurance number or date of birth
• the employee’s signature

The opt-out notice must also contain the following statements, which give your employees more information about opting out and their rights as an employee:

• Your employer cannot ask you or force you to opt out.
• If you are asked or forced to opt out, you can tell The Pensions Regulator.
• If you change your mind, you may be able to opt back in – write to your employer if you want to do this.
• If you stay opted out of the scheme, your employer will normally put you back into pension saving in around three years.
• If you change your job, your new employer will normally put you back into pension saving straight away.
• If you have another job, your other employer might also put you into pension saving now or in the future. The notice only allows you to opt out of the pension saving with the employer you name in the notice. A separate notice must be filled out and given to any other employer you work for if you wish to opt out of that employer’s pension saving as well.
• The following declaration must be included before the employee’s signature:
  • I wish to opt out of the pension scheme.
  • I understand that if I opt out, I will lose the right to pension contributions from my employer.
  • I understand that if I opt out, I may have a lower income when I retire.

Some workplace pension providers, can do this for you if you choose. If you use a benefits platform for your employees, that may also be able to collect opt-outs on your behalf, though you would also need to speak to your pension provider.

From the day on which one of your jobholders gives a valid opt-out notice, you have one month from their request to:

• remove them from your scheme
• stop taking contributions from their pay
• arrange a full refund of what they’ve paid to date.

If an employee opts out the first time they’re auto-enrolled, this effectively means they’ve never been a member of your workplace pension. You won’t need to assess their earnings again until your re-enrolment date. 

If you use Aviva’s workplace pension, we’ll tell you when an employee opts out, so you can stop your contributions to their pension. We’ll also pay any refunds due to you and the employee.

As an employer, the law requires you to keep either the original or a copy of the opt-out notice for four years, either electronically or on paper. 

Your scheme administrators also need to keep the following information:

There are a couple of important points your employees need to think about before deciding whether they want to opt out of your workplace pensions scheme:

• The pension contributions they make currently get tax relief from the government and can be a tax-efficient way to save. Tax benefits may change and will depend on the employee’s individual circumstances.
• By opting out of the workplace pension, they’ll no longer be entitled to receive employer pension contributions.

They should also bear in mind that not paying into a pension could mean they have less income when they retire. 

Any employees who are not already members can ask to opt into your pension scheme at any time. 

They will have to fill in a valid opt-in notice. This can be in writing and signed by the employee or an email including a statement from the employee confirming they have submitted it personally. 

• You can reject an opt-in notice if the employee has stopped contributions into your scheme within the last 12 months.
• After receiving a valid opt-in notice, you have six weeks to make the employee a member of the workplace pension scheme and to start job contributions if you’ve assessed them as an eligible jobholder. If they are an entitled worker, you must allow them to join the scheme, but you don’t have to pay employer contributions.

Remember, you must re-enrol all opted-out employees into your workplace pension scheme every three years – even if they intend to opt out again. We explain more about this in our Guide to re-enrolment.