guide to stopping pension contributions (69)
Roderick Ramage, solicitor, www.law-office.co.uk
(first published by
distribution to professional contacts 1 January 2020)
This article is not advice to any
person and may not be taken as a definitive statement of the law in general or
in any particular case. The author does
not accept any responsibility for anything that any person does or does not do
as a result of reading it.
An employee wants to stop or reduce his pension contributions but
might wish to restart or increase them in the future. The short answer is that no one can compel anyone
to belong or contribute to a pension scheme, but there is a little more to it.
(In order to avoid the confusing use of the plural “they” as a
gender neutral 3rd person singular pronoun, I use “he” and its
equivalents and rely on the Interpretation Act 1978 s6, as though this note
were an enactment, to provide the necessary “or she” and equivalents. For a possible gender neutral pronoun see my article
20 in “other legal topics” at www.law-office.co.uk.)
basics There are two
underlying principles, which are:
an employee (unless enrolled automatically) becomes a member of a
pension scheme (including a contract as well as a trust based scheme) by
applying to join and his application being accepted; and
by s160 of the Pension Schemes Act 1993, any terms in employment
contracts, which require employees to belong to a pension scheme or any
particular scheme, are void, the corollary of which is that a member of a
pension scheme is not or may cease to be a member.
There are two forms of automatic membership, which are:
“voluntary”, ie pension schemes, such as the NHS’s, and
occasionally private sector schemes, in which the employee becomes a member automatically
on starting the appropriate employment, unless he opts out; and
statutory automatic enrolment (AE) under the Pensions Act 2008, by
which every employer must enrol eligible jobholders automatically into a
pension scheme, unless the jobholder is already in a qualifying scheme, but the
jobholder may opt out within the later of one month of being enrolled and being
notified of it.
(para 1(b) above) applies to all pension schemes, and, in the case of an AE
scheme, it applies at any time, even if the member has not exercised the
statutory right to opt.
death in service (DIS) benefits (usually lump sums but can be or include dependants’
pensions) are made available either as part of the benefits provided by an
occupational pension scheme or under a stand-alone arrangement. In practice, but not out of legal necessity, the
DIS benefits are provided at no cost to employees, who become entitled to them
either on the condition of being a pension scheme member for pension benefits
or automatically irrespective of membership of the or a scheme for pension
the DIS benefits are free so far as the employee is concerned, as are pensions
from a non-contributory pension scheme, ie one in which the
contributions are paid by only the employer, there is usually no reason for an
employee to refuse to be a member or to wish to cease membership, except for a
tax reason (annual or lifetime allowances – as to which see my New Year 2017
updates and my pension articles 51 and 52, and, in respect of the NHS Pension
Scheme, article 65 at www.law-office.co.uk).
leaving what? Depending on the scheme’s
rules the employee, who simply wants to leave the scheme, might have several
choices, particularly if the employee’s aim is to reduce outgoings and maximise
disposable income, temporarily or permanently.
leaving the scheme The pension scheme rules
say how much notice the member must give and to whom (usually the
trustees). The member’s rights on
leaving are dealt with as summarised in para 5 below.
leaving the scheme except for DIS benefits
This depends on the scheme’s rules and might, if the benefits are
insured, might depend on the effect, if any, on the premiums paid by the
employer of one or more employee’s ceasing to be covered.
reduction of contributions This depends on the
scheme’s rules, and, subject to them might be a reduced % of pay or a fixed periodic
amount lower than is paid at present.
suspension of contributions This depends on the scheme’s rules.
salary sacrifice If the employer agrees, the
saving for the employee might be worthwhile, especially if the employer’s saving
of NICs is passed to the employee.
under (a) will, in all normal circumstances, result in the employer not being
in a qualifying scheme for AE, and the reduction or suspension under (c) or (d)
might have the same result. If so, the
employer will be required to re-enrol the employee after three years.
accrued rights on leaving a pension scheme
The pension scheme rules say what happens to a member’s accrued rights,
which, in the case of occupational pension
schemes, must be not less than is required under the preservation provision of
the Pension Schemes Act 1993.
A member of a personal pension scheme (typically a contract between
the member and an insurance company or other provider) has an account consisting
of the employer’s and employee’s contributions increased or reduced by the
investment returns on it. The member may
draw benefits from it if already over the minimum pension age (normally age
55), leave the account in the scheme or transfers it to another scheme.
The preservation requirement is that:
if the employee has up to three months’ pensionable service, his
but not the employers’ contributions are repaid to him without interest;
if the employee’s pensionable service is over two years, he may
transfer his rights to another scheme or leave them in the scheme until he
starts to take pension benefits at his normal pension age; and
if the employee’s pensionable service is between (i) and (ii) he
can choose either the refund of contributions as in (i) or a transfer out as in
re-joining This depends on the scheme’s rules,
but should normally be allowed.
employment contract Prudently drawn contracts
should not specify amounts of any salary related benefits (other than insured DIS
benefits), but employment contracts may safely and often do state the
employer’s contributions to a money purchase scheme. Changes in pension rights and obligations
should be changed by a written agreement, unless they have effect automatically
by any other changes of employment terms, including changes by a furlough
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