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Can an employee reduce their pension contributions?

Pension savings can be a very effective way to save for the future. Your employee may not be aware of how much money they’re missing out on if they stop paying into their pension pot. They should visit our website before they make a decision, to understand what they risk losing by stopping or reducing their contributions.

What if your employee wants to stay in the pension scheme, but doesn’t want to pay the balance to meet the legal minimum contribution?

An employee can decide that they’d like to reduce their pension contributions so as they’re not meeting the legal minimum contributions. This means the employee will no longer be classed as ‘eligible’ for auto-enrolment’.

It should be their choice to pay below the minimum levels, and their employer is legally not allowed to suggest, encourage or induce them to do so.

Employers can choose to support the employee’s decision to reduce their pension contributions by following our guide,’Paying below the minimum contribution levels’.

Reducing their pension contributions means:

  • the employee should remain in the pension scheme as an active member.
  • you don’t have to continue paying pension contributions for them – but you can if you want to and can choose how much you’ll pay.
  •  you may need to re-enrol your employee into the pension scheme every 3 years (sometimes sooner). They’ll then have the opportunity again to see if they’d like to contribute to meet the total legal minimum contributions.
  •  the employee can decide to join the pension scheme and pay towards the total minimum contributions at any point in the future. They’ll just need to let their employer know in writing. This can be a signed letter or email, if it includes a statement to say it has come from them.

If you choose not to enable your employees to pay below the legal minimum contributions, they can opt out and pay pension contributions directly into their pension pot by Direct Debit. They’ll still benefit from the tax relief on their payments, and you won’t need to contribute. Your employee should be directed to our website if they’d like to set this up.

I can’t pay for contributions, what happens now?

By law, when you take contributions from your employees’ wages, you must pay these to your pension provider by the 22nd of the following month.

What should I do if I’m unable to pay for contributions?

Things are very difficult for many businesses right now, and we understand that you may be experiencing problems paying for your employees’ pension contributions.

The Pensions Regulator (TPR) has said that auto-enrolment duties continue to apply as normal, including your re-enrolment and re-declaration duties. However, they’re taking a measured approach to this.

Even if you’re unable to pay for contributions, you should continue to send us your employee data every pay period. This means that we’ll be able to allocate contributions to your employees quicker once you are able to make payment.

We’ll still send automatic reminders to you when your contributions are late. We’re on hand to support you with any difficulties you may be facing, so please get in touch as soon as you can if this applies to you.

What could happen if I don’t pay?

When contributions are 90 days late, we’re obliged to report the case to TPR, and write to all affected members. You may be fined by TPR if you don’t pay outstanding contributions by this date.

When you’re able to pay

Simply log into your Online Services account and select ‘Make a payment’ from your account home page.

We’ll apply your payment first to the amount that has been outstanding the longest. This is to help you avoid falling into further arrears.

If you pay by automated collection

Please note, if you send us contributions data or ask us to take payment within 6 working days of your collection date, we won’t be able to request this from your bank in time. We’ll collect this payment on the next collection date. Our system sends automated emails, so you may receive reminders while we’re processing your contributions.

What support is available?

If you’re in financial difficulty due to the coronavirus outbreak, the government has made support available to employers.

Visit the government website for information on coronavirus support available.

The Pensions Regulator is also frequently updating their guidance to employers – check their website for the latest information and guidance.

What’s re-enrolment?

On the 3rd anniversary of your staging/duties start/previous re-enrolment date, you must re-enrol anyone who has opted out, ceased active membership or is paying below the minimum contribution levels and are eligible employees. You may hear this referred to as ‘cyclical’ or ‘triennial’ re-enrolment.

You can choose to do this on a date from a window of up to 3 months before or 3 months after the 3rd anniversary of your staging/duties start/previous re-enrolment date. This is called your ‘re-enrolment date’. Postponement (where you may delay working out who to put into a pension scheme) can’t be used at re-enrolment.

Those who’ve opted out within the 12 months prior to your re-enrolment date won’t need to be re-enrolled on this occasion, but on the next re-enrolment date instead.

You must write to eligible staff individually, within 6 weeks of the chosen re-enrolment date, to tell them they’ve been re-enrolled.

It’s a legal requirement that once you’ve re-enrolled, you have to re-declare your compliance with The Pensions Regulator within 5 calendar months of the 3rd anniversary of your staging/duties start date – if you don’t, you could be fined. This has to happen whether or not there are any employees to re-enrol.

What’s re-assessment and how often do I have to do it?

After you’ve assessed your employees for their auto-enrolment status at your staging or duties start date, you then have to monitor their age and earnings for each subsequent Pay Reference Period. They may trigger the requirements to become assessed as eligible and will therefore need to be auto-enrolled. You don’t need to re-assess any eligible employees who’ve opted out, apart from when you re-enrol.

How do I manage employees who want to opt out?

An employee who has automatically enrolled into a qualifying pension scheme, or opted in to the pension scheme, has the right to opt out. They can opt out within one calendar month from whichever is the latest of when:

– active membership is created (i.e. the date they were enrolled into the pension scheme); or
– they receive their joiner information.

This is called the ‘opt-out period’. Opt-outs within this period will have their contributions refunded. An employee may stop active membership after the opt-out period has expired but won’t receive a refund of contributions.

How and where do I send details of my employees’ contributions?

You’ll need to calculate, deduct and pay employees’ contributions, as well as employer contributions on their behalf into the qualifying pension scheme. Most payroll providers’ software is geared up for auto-enrolment, so all you’d need to do is extract the data file and submit it via a secure portal to the pension provider.

What do I have to do after I’ve enrolled employees?

Once you’ve successfully enrolled your eligible employees and the joiner information has been sent out, there are duties that you’ll be required to fulfil on an ongoing basis such as uploading your payroll files to pay contributions. You’ll also need to manage employees who join and leave and those that opt in and opt out.

And every 3 years, you’ll need to re-enrol anyone who has opted out, ceased active membership or is paying below the minimum contribution levels and is an eligible employee. You’ll also need to re-declare your compliance every 3 years – even if you have no one to re-enrol.