Use Case
Most employees will get automatically enrolled on the company pension scheme as this is a legal requirement in the UK. However it is possible for employees to voluntarily opt out of pension contributions if they wish to do so.
It is possible to process a pension contribution refund for an employee who opts out of the scheme if:
They were automatically enrolled, and
they opted out within a month of their enrolment date, and/or leave the company within 30 days of joining.
If the employee doesn't meet these two conditions, they won't be able to get a refund.
How to process a pension refund
1. You'll first need to opt out the employee from your pension scheme or ask them to do so directly.
2. Your pension provider will refund you for both the employer and employee contributions made to the employee's account. This will be processed within a few days by your provider and will be sent directly into the company's chosen bank account.
3. You now need to separately refund your employee for the pension contribution they made out of their salary, in your payroll. Make a note of the amount due to be refunded by your pension provider for their contribution.
4. Check whether the refund will net or gross of tax:
If you're with Smart Pension or have a pension set up with contributions taken as net pay, the refund should be added as a gross addition (called bonus on Onfolk), as the pension contribution was taken pre-tax and is therefore taxable.
If you're with NEST or have a pension set up with contributions taken as relief at source, the refund should be a net addition. This is because the pension contribution was taken post-tax, so the employee doesn’t need to pay tax again on that money.
💡 You can check what your scheme is set up as in Onfolk here.
5. Process the amount to be refunded as a gross addition (bonus) or net addition.