Leaving a pension scheme

Everyone can leave or decline to join an occupational pension scheme.

How you do this and what happens to the money paid in will depend on the scheme rules and the circumstances. 

Opting out

Recent changes to the law require all employers to provide a pension scheme which both the employer and the employee pay into. The law is being phased in gradually so it not will affect everyone yet but all workplaces will be covered by 2017.

Under this legislation, employers are legally required to automatically enrol eligible staff into the scheme. The employer must let the employee know they have been enrolled and that they have the right to leave the scheme. This is known as opting out.

Once informed, employees have one month to opt out and must follow the procedure laid out in the scheme by providing an opt out notice.  Employers cannot accept any request which does not follow the procedure. Once it is accepted, the employer is legally required to ensure that any employee contributions that have been deducted are paid back. Employees can choose to opt back into the scheme at a later date.

All those opting out will be automatically enrolled again every three years if they are with the same employer. The employee can opt out again by following the same procedure.

Ceasing active membership

People who are already a pension scheme member or did not opt out of active enrolment within a month can still withdraw from a scheme. This is usually known as ceasing active membership. Every scheme will have its own rules about what happens to the contributions that have been paid in depending on the time in the scheme. The employee may be entitled to a refund, receive a transfer value to another scheme or the benefits may be “preserved” - kept until the employee reaches the retirement date laid down in the scheme.

Should I opt out or cease active membership of a pension scheme?

There are many advantages to occupational pension schemes - tax relief on contributions, employer contributions, a tax free lump sum on retirement and often some flexibility to take benefits at 55.

Those in defined contribution schemes have a wide choice of how to use their pension pot. Those in defined benefit schemes get a guaranteed index-linked pension, payable for life with safeguards for your partner should you die before them.

It’s a lot to give up, so always make sure that you get as much advice as possible.