Opting In and Out of Employment Pension Schemes

Blue Isometric Design

Deciding whether to opt in or out of an occupational pension scheme can be a complicated decision. Most full-time employed individuals will be automatically enrolled into their employer’s chosen pension provider (which they have to offer by law). They will make regular contributions if you meet certain criteria, specifically:

  • If you are aged between 22 and State Pension age,
  • you earn at least £10,000 per year, and;
  • you are classed as eligible to work in the UK.

However, what should happen if you want to leave (or ‘opt-out’ of) a workplace pension scheme, or if you don’t qualify for automatic enrolment?

As leading chartered accountants, we thought it best to guide you through the benefits and considerations of opting into your own choice of pension scheme. Keep reading for advice on navigating the complex landscape of UK employment pension enrolment and departure, and how you can make the most tax-efficient and beneficial choice for you.

When Do Employers Not Have to Automatically Enrol You into Their Pension Scheme?

There are a few scenarios where an employer would not have to automatically enrol an employee into their workplace pension scheme:

  • If you are under 22 years old or over the State Pension age, you do not qualify for auto-enrolment.
  • If you earn less than £10,000 per year, your employer does not have to auto-enrol you. However, you can opt in if you wish.
  • If you are not ordinarily working in the UK, such as a sole trader or short-term contractor, you may not qualify for auto-enrolment.
  • Directors of limited companies – without employment contracts – may be exempt from auto-enrolment depending on how they are paid.
  • If you have already given notice to the employer that you intend to leave, or if they have already informed you that you are being made redundant.
  • If you have already been auto-enrolled into a pension scheme that has been authorised by your employer. This does not have to be the incumbent scheme that they use specifically.
  • If you are in receipt of a one-off ‘winding up’ lump sum payment from an employer you leave and rejoin within 12 months of employment.

Therefore, if any of these situations apply to you, you would need to actively ‘opt-in’ to your employer’s pension yourself if you wanted to join. You also have option to delay your enrolment date by up to 3 months if you wish. It’s important to mention that your employer cannot force you to opt out of their incumbent scheme if you meet the qualifying criteria.

What Happens When You’re Automatically Enrolled?

When starting a new job, your employer will normally give you information on the workplace pension scheme they use. Most full-time employees will not be automatically enrolled until they pass a minimum probationary period, but this is not a universal practice across the board. Usually within a period of 3 to 6 months of your start date, if you meet the criteria, you will be automatically enrolled into that pension plan. Your employer and you will then start contributing a percentage of your earnings to the pension scheme each pay period.

How to Leave a Workplace Pension Scheme

If you have been automatically enrolled into your employer’s obligatory pension scheme, you have several routes to take if you decide to leave. You can inform your employer and they can process your opt-out request. This will stop contributions being taken from your pay. If you opt out within a month of being enrolled, you’ll be returned any contributions that you – and the employer – have put in. If you decide to opt out later down the line, you may not get payments refunded as these will stay in that pension until you retire.

To leave a pension scheme, you can request to do so in writing to your employer. You can also contact the pension provider specifically to opt out if you wish. Your employer will be able to advise how you go about this. It’s worth noting that you’ll be automatically re-enrolled every 3 years, from the date you first enrolled. If, after leaving, your circumstances change where you no longer meet the qualifying criteria, you will not be automatically opted in.

Could There Be Any Tax Implications for Opting Out of an Employer Pension Scheme?

Opting out of a workplace pension scheme could have some tax implications in certain situations.

  • If your employer contributes to the pension scheme, you will lose out on the accrued amounts which can build over time.
  • You may miss out on valuable tax relief that you’d get on your own pension contributions. Tax relief can help lower your overall tax bill and give you additional available cash to use to fund your retirement.
  • Any take-home funds may not grow as quickly as your savings. The earlier you invest in your pension, the greater growth potential you have. Opting out can stunt this progress significantly.
  • Paying into a workplace pension can often reduce your National Insurance Contributions (NICs) or student loan payments. If you stop paying into it, these payments can rise, giving you less take-home pay.
  • If you opt out and your income subsequently rises above a certain amount, your Personal Allowance may be reduced. Staying enrolled could help avoid this.
  • Cashing out a pension before age 55 may incur extra tax charges. It’s often in your best interest to leave funds invested for as long as possible, if you can.

Therefore, it’s wise to think carefully before opting out and consider discussing your options with a financial expert first. This can help ensure you don’t lose out financially.

Expert Help from Tax Advisors and Accountants

Opting in and out of a workplace pension scheme can be an effective and tax-efficient strategy. However, to understand the full extent of the tax reliefs that you could be entitled to, as well as the routes to take to give you maximum stability and peace of mind, you may benefit by consulting with an impartial chartered accountant. We want to help you understand the tax implications and risks that you could be encountering by either opting in or out of a workplace pension scheme. We’d strongly advise that you do not make hasty decisions and, instead, contact us for advice and guidance to help you maximise any applicable tax relief and funds to safeguard your future as you approach retirement.

For proactive, professional, and reliable accounting and tax support that you can trust, Hamlyns are here to help you at any stage of your journey. Please contact us today if you need additional guidance about business pension options in any way.

Point of Contact
Patrick Collins
Tax Director

Patrick Collins


Why Choose Hamlyns?

Personalised Service

We take a unified and unique approach to accountancy; providing an individual service to our clients

Time & Dedication

We take the time to offer proactive and innovative advice that help our clients achieve their long-term goals

Holistic Approach

Our holistic approach offers a combination of professionalism, a personal touch and attention to detail

Quality Assurance

Every one of our professional team is a member of one or more of the ICAEW or the ACCA

What Our Clients Say

Chris and his team gave us precisely the advice our business needed, even before we knew we needed it!

Mike Higgins
Managing Director, Hawkmoor Limited

It’s great that I always get to speak to the same Partner who knows our situation, so I don’t need to keep repeating things.

Johnny Richards
Finance Director, Normandy Garage

When we came to Hamlyns, we were a start up business. In a few years, they’ve really helped us become a major player in our sector.

Frank Pawley MBE
Chairman, Global Travel Management Ltd

We have been working together for over 10 years and our relationship is vital to the success of our business; I would not hesitate to recommend them.

Angela Hall
Partner, Occupational Health Professionals LLP

I appreciate Hamlyns expert and informed guidance and helpful approach.

Managing Director, Arcom IT

Hamlyns took the stress away by anticipating and understanding what I needed.

Managing Director, PromoLogistics Limited

Hamlyns gave me great advice and hand-holding to ensure my exit from the company was quick and clean. I am also thousands of pounds better off. Thank you, thank you.

Douglas Cooke
Former Director

Hamlyns treat me as an individual. I don’t feel like “just another client” to be processed.

Diana Boulter
MD, DBA Speakers