What is contractual enrolment?
Contractual enrolment is an alternative to auto enrolment
Contractual enrolment and auto enrolment
Auto enrolment is a way of being signed up to a workplace pension. Auto enrolment doesn’t need you to give permission, it all happens automatically.
Contractual enrolment is another way of joining a workplace pension. With contractual enrolment, your employment contract has all the details of your company’s pension scheme.
You may be enrolled into a pension as part of your employment contract or you might be invited to join the scheme (you will be required to complete an application form in this case). Sometimes, you have the option to not join that scheme. If that’s the case, then your company must still give you access to a workplace pension – and it will have to auto enrol you, which is why this can be confusing.
Every employer must have a pension scheme that can be used for automatic enrolment. There are reasons why an employer may want to use ‘contractual enrolment’ instead. There are differences.
Contractual enrolment and auto enrolment
Auto enrolment is a way of being signed up to a workplace pension. Auto enrolment doesn’t need you to give permission, it all happens automatically.
Contractual enrolment is another way of joining a workplace pension. With contractual enrolment, your employment contract has all the details of your company’s pension scheme.
You may be enrolled into a pension as part of your employment contract or you might be invited to join the scheme (you will be required to complete an application form in this case). Sometimes, you have the option to not join that scheme. If that’s the case, then your company must still give you access to a workplace pension – and it will have to auto enrol you, which is why this can be confusing.
Every employer must have a pension scheme that can be used for automatic enrolment. There are reasons why an employer may want to use ‘contractual enrolment’ instead. There are differences.
What are the differences between contractual and auto enrolment?
Asking permission to enrol you
If you’re an employee who’s been contractually enrolled, then your employer will have asked your permission before adding you to the scheme – usually as part of your employment contract. Otherwise, if you’re being auto enrolled as an eligible jobholder, your employer can enrol you without asking your permission. If you've been contractually enrolled and you decide to leave the scheme, then you may be automatically re-enrolled at a later date.
Deciding not to join
If your employer asks you – as part of a contract – whether or not you’d like to join a scheme, you can say no. If you decline to be contractually enrolled, then your employer will have to fulfil auto enrolment duties for you. If you are automatically enrolled, then you will be given the right to opt-out or cease membership at a later date.
Asking permission to deduct contributions
If you’ve been contractually enrolled, your employer must ask your permission to take contributions from your salary – again, this is usually written into your contract. If you’ve been auto enrolled then, in line with the Pensions Act 2008, the employer can deduct contributions from your salary without getting express permission.
Opting out and refunds
With contractual enrolment, you can leave the scheme and the rules of the scheme will determine whether you get a refund. With auto enrolment, you can opt out within the required timeframe and will receive a refund of your contributions under the Pensions Act 2008. You can leave the scheme at any time, but you would not receive any refund and you would continue to have benefits in the scheme.
Postponement
Employers cannot use postponement to delay contractual joining for employees. By way of contrast, employers can postpone auto enrolment dates – not contractual enrolment dates – by up to three months. Postponement only applies where you are being automatically enrolled for the first time and is not available for automatic re-enrolment.
What are the differences between contractual and auto enrolment?
Asking permission to enrol you
If you’re an employee who’s been contractually enrolled, then your employer will have asked your permission before adding you to the scheme – usually as part of your employment contract. Otherwise, if you’re being auto enrolled as an eligible jobholder, your employer can enrol you without asking your permission. If you've been contractually enrolled and you decide to leave the scheme, then you may be automatically re-enrolled at a later date.
Deciding not to join
If your employer asks you – as part of a contract – whether or not you’d like to join a scheme, you can say no. If you decline to be contractually enrolled, then your employer will have to fulfil auto enrolment duties for you. If you are automatically enrolled, then you will be given the right to opt-out or cease membership at a later date.
Asking permission to deduct contributions
If you’ve been contractually enrolled, your employer must ask your permission to take contributions from your salary – again, this is usually written into your contract. If you’ve been auto enrolled then, in line with the Pensions Act 2008, the employer can deduct contributions from your salary without getting express permission.
Opting out and refunds
With contractual enrolment, you can leave the scheme and the rules of the scheme will determine whether you get a refund. With auto enrolment, you can opt out within the required timeframe and will receive a refund of your contributions under the Pensions Act 2008. You can leave the scheme at any time, but you would not receive any refund and you would continue to have benefits in the scheme.
Postponement
Employers cannot use postponement to delay contractual joining for employees. By way of contrast, employers can postpone auto enrolment dates – not contractual enrolment dates – by up to three months. Postponement only applies where you are being automatically enrolled for the first time and is not available for automatic re-enrolment.
Instant changes to your
pension savings
You won’t need to check in on your pension savings every day. They're designed to be a long-term investment. But if you do need or want to get an update, then the secure Smart Pension makes it easy to get that information straight away. There’s no need to make a phone call or to wait for a letter.
Our app will give you real time information about your pension savings. It puts your future into the palm of your hand.
Instant changes to your
pension savings
You won’t need to check in on your pension savings every day. They're designed to be a long-term investment. But if you do need or want to get an update, then the secure Smart Pension makes it easy to get that information straight away. There’s no need to make a phone call or to wait for a letter.
Our app will give you real time information about your pension savings. It puts your future into the palm of your hand.
Smart Pension's fund choices
Smart Active Impact Bond Fund
Aims to invest in bonds which have an environmental impact and generate financial return above the global green bond market, taking into account Environmental, Social and Governance issues when selecting investments.
As this fund was recently launched, a factsheet is not yet available.
Smart Active Impact Equity Fund
The aim of this fund is to invest in equities which provide growth over the long term (being a period of five years or more) and invest in companies that contribute to the achievement of the United Nations’ Sustainable Development Goals.
As this fund was recently launched, a factsheet is not yet available.
Smart All Stocks Index – Linked Gilts Index Fund
Aims to track the return of the FTSE Actuaries British Government Index Linked All Stocks Index, which features UK government bonds with returns linked to the Retail Price Index (RPI).
Smart Annuity Fund
Aims to improve potential outcomes for investors likely to purchase fixed annuities by providing a diversified exposure to assets that reflect the broad characteristics of investments underlying a typical traditional level annuity product, incorporating Environmental, Social and Governance (“ESG”) considerations as part of the investment strategy.
The fund cannot provide full protection against changes in annuity rates for individual members as these also depend upon a number of other factors (e.g. changes to mortality assumptions).
Smart Cash Fund
Aims to maintain capital and provide a return in-line with money market rates by investing in a range of money market securities denominated in sterling.
Smart Ethical and Climate Fund
Aims to track a filtered index, which excludes companies that operate in industries that breach certain ethical criteria.
Smart Global Bond Index Fund
Aims to invest in different types of bonds in the UK and overseas, taking into account Environmental, Social and Governance factors.
Smart Growth Fund – Higher Risk
This fund carries a higher risk of fluctuation to your savings than other growth funds available but has the potential for high growth, though this is not guaranteed.
Smart Growth Fund – Lower Risk
This fund carries the lowest risk of fluctuation to your savings than other growth funds available but also reduced likelihood of a high return. It may be suitable if you are concerned about volatility.
Smart Income Fund
Aims to provide long-term investment growth up to retirement, and to support flexible income during retirement, taking into account Environmental, Social and Governance factors.
Smart North America Equity Index Fund
Aims to provide broad exposure to companies in the North American equity market, taking into account Environmental, Social and Governance factors.
Smart Sharia Fund
Aims to create long term appreciation of capital through investment in a diversified portfolio of securities which meets Islamic investment principles.
Smart Sustainable Growth Core
Aims to take advantage of Environmental, Social and Governance factors by investing more in companies which score well in these areas.
Smart Sustainable Growth Fund
Aims to take advantage of Environmental, Social and Governance factors by investing more in companies which score well in these areas to mitigate Environmental, Social and Governance risks and benefit people and the planet by having a moderate allocation to investments contributing to solutions for environmental and social issues.
Smart Sustainable Growth Plus
Aims to take advantage of Environmental, Social and Governance factors by investing more in companies which score well in these areas to mitigate Environmental, Social and Governance risks and benefit people and the planet by having a high allocation to investments contributing to solutions for environmental and social issues.
Smart UK Equity Index Fund
Aims to provide broad exposure to the UK stock market, taking into account Environmental, Social and Governance factors.
Smart World (ex UK) Developed Equity Index Fund
Aims to provide broad exposure to large and mid-cap companies in the developed world, excluding the UK, taking into account Environmental, Social and Governance factors.
Smart World Emerging Markets Equity Index Fund
Aims to provide access to key emerging economies taking into account Environmental, Social and Governance factors.
