Pension providers are split on whether bosses or insurers have responsibility for holding employee contributions during auto-enrolment opt-out periods.
Contributions are deducted as soon as an employee becomes eligible for auto-enrolment, at the beginning of their 30-day opt-out period. While some insurers will take this contribution immediately, others refuse to hold the money until the employee has not opted out.
Legal & General pensions strategy director Adrian Boulding said his firm will provide an option to hold the money, but will discourage it.
“We do offer a choice but recommend that the employer route is the best option,” said Boulding.
“In most cases employers are choosing to hold on to the first month’s contributions from new joiners so that they can get refunds back promptly to people who opt out.”
Standard Life head of workplace savings Jamie Jenkins said the insurer will offer an option where employers can hold the money themselves, or send it to Standard Life.
He said: “The employer can send the payments to the pension provider. This may work better for those members who remain opted in, which for most employers will be the majority.”
However, a spokesperson for Scottish Widows said the mutual does not expect employers will want to handle contributions themselves.
“Our expectation is that the employer will pass all payments to us as soon as they have been taken from pay. We will then apply these to a policy for the member,” the spokesperson said.
L&G, Standard Life, Aviva and Scottish Widows all said they will invest contributions received in the opt-out period in their default funds.
This means that if members opt out, the insurers must refund the original contribution value, even if the fund loses money during that period.
However, some insurers are unwilling to take on this investment risk or administrative expense.
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