Reusing contributions again and again
If the employer contributes to a trust-based scheme, refunds of contributions can be made to members if they opt-out within the first 2 years of membership.
The employer is then able to ‘re-use’ their contributions. This could represent a significant saving for employers and can occur either within or outside of a Salary Exchange arrangement.
However, if an employer is making contributions to a contract-based arrangement (e.g. GPP, Stakeholder, SIPP), refunds cannot be made to members and the employer will be unable to benefit from their contributions either.
Removing the cost of deferred members
If a member opts-out of a trust based scheme after 2 years of pensionable service, refunds of contributions are not permissible. Instead, the scheme, and ultimately the employer, retains the liability and cost of managing the arrangements, meeting levies and ensuring they appropriately engage with all such deferred members. Surveys indicate that this cost is significant, varying from £50 to over £100 per member per annum.
It is possible to remove these liabilities, either by members voluntarily transferring their benefits to another arrangement, ‘buying out’ the deferred member benefits via S32 policies or transferring them on a non-consent basis to a mastertrust arrangement.
Xafinity can assist you to understand the potential cost savings and risk mitigation that each of these strategies could generate for your DC scheme.