Caroline Castle, from Torquil Clark, provides monthly guidance on auto enrolment topics that employers should pay particular attention to.
Since auto enrolment was launched in October 2012 there has been the right for employees to “opt out” of the system. This is because they have been enrolled as pension scheme members through legislation rather than personal choice. Whilst the actual numbers of employees following this route has been far lower than the industry anticipated, there have still been a few who have decided their employer’s plan is not right for them, and who want to unravel the whole process and receive a refund of contributions.
The guidelines surrounding auto enrolment dictate that this can only be a successful process if it is completed in a timely manner, namely within 30 days. But within 30 days of what? Is it 30 days of the assessment, the issue of the member pack, or the receipt of the data by the insurer? Herein lies the confusion. Pension providers are not uniform in the process they require for an employer to achieve a successful “opt out”. However, one criteria is universal – “opt out” cannot be achieved through contact with the employer alone. Any employer encouraging this would be deemed in breach of auto enrolment legislation. The pension provider has to be the first point of contact and it is they that must instigate the “opt out” process following contact from an employee.
Let us consider how this would be achieved in practice. The employer assesses their workforce, determines who is to be auto enrolled, deducts the appropriate contribution from their employee and communicates this to them. This same communication also has to inform them of their right to “opt out”, but also that any such request needs to be directed through their pension provider.
With so much on offer by way of auto enrolment support from payroll providers or third party administrators, enrolment can take place without the pension provider knowing anything about these actual employees. It is the employer’s responsibility to input the details of the auto enrollees onto the pension provider’s system. This will ensure that their communications can be dispatched without too much delay. It is these communications which inform employees of their personal details for the scheme, such as their plan number; details which are frequently required to “opt out”. As the pension provider has to rely on the employer themselves uploading details of the auto enrolled employees, they are dependent on this information being provided before they can support any “opt outs”.
Historically employers have only had to submit this information and their contributions to the pension provider by the 19th of the month, following deduction. The same ruling still applies, but if an employer runs with these same timeframes after staging, as prior to their auto enrolment, even monthly paid employees could well see two contributions deducted before they can “opt out” and receive a refund.
Some pension providers have got round the issue by ensuring the employer informs employees of the scheme number at the point of auto enrolment. This will allow employees to contact them with this and their National Insurance Number and this contact alone ensures an “opt out” notice can be issued. The pension provider then only requires contributions to be submitted the following month for those employees who are happy to remain as members of the scheme when a double contribution will be passed across.
However how does this affect the vast majority of auto enrolled employees who do want to remain as pension scheme members and require the greatest return possible from their investment? Potentially they could be disadvantaged and lose out on a month’s growth on their contribution whilst it sits in their employer’s pension account waiting for the “opt out” period to elapse.
With pension providers free to establish their own method of resolving the “opt out” issue, this could well be a factor for employers to consider in their selection of pension provider. As a general point it does mean that all employers will have to adopt a much prompter process in ensuring their pension provider receives personal data for all employees, even if they can still delay the submission of the contributions to later in the month. If the two parts of the process have to be managed simultaneously, delay of payment until the 19th of the following month could well be unacceptable and they will need to budget in order to pass these across within a shorter timeframe.
Auto enrolment was never going to be easy, but managing the “opt out” facility, to be fair to all, adds a further complexity which may not have been envisaged. Pension advice will ensure you are not only aware of these potential issues but also understand them sufficiently to make an informed decision on the process to deliver what is best for you and your employees.
To find out more about Auto Enrolment, visit www.iod.com/autoenrol or call 01902 576707.
Consultancy charges apply. Torquil Clark Ltd is authorised and regulated by the Financial Conduct Authority. Not all Auto Enrolment services are regulated by the Financial Conduct Authority.