Automatic Enrolment and the consequences of not getting it right

There are still a number of employers, who are due to stage in the next year or so, who do not think automatic enrolment applies to them; they are probably wrong, it will! The Pensions Act 2008 makes it law for employers to offer an automatic enrolment workplace pension scheme, on or before their staging date. As with any new legislation that has mandatory requirements there is a compliance and enforcement strategy The Pensions Regulator works to.

The Pensions Regulator’s main objective is to help employers get it right, but for the few who do not want to comply, they have a plethora of compliance and enforcement options, using a risk based approach, including:

  • Early detection of non-compliance
  • Warning letters for minor breaches
  • Inspection powers
  • Serve mandatory requests for information
  • Serve Statutory notices forcing remedial action
  • Serve Compliance notices forcing remedial action
  • Third party Compliance notice, where someone else/agent has caused the non-compliance
  • Improvement notice can be issued
  • Unpaid Contributions notice where pension contributions haven’t been paid to the pension provider by the due date
  • They also have discretionary powers in respect of pension contributions and can;
    - Estimate the rate of unpaid contributions
    - Charge interest on the unpaid contributions
    - Direct an employer to pay both their and their employee’s unpaid contributions
    - Direct the employer to calculate the amount of unpaid contributions themselves
  • Financial penalties
    - Fixed Penalty Notice when a Statutory notice is not complied with - £400
    - Escalating Penalty Notice
Number of persons Escalating Penalty Prescribed daily rate (£)
1-4 50
5-49 500
50-249 2,500
250-499 5,000
500 or more 10,000

Where requests are made for information, if this isn’t supplied, or is found to be false information, it may lead to the aforementioned financial penalties and or criminal prosecution that could result in a custodial sentence.

If you are an employer with two employees, I am sure a £400 penalty and the added escalating penalties of £50 per day, until you comply is not something you can readily afford to do.

The Pensions Regulator’s latest bulletin provides some interesting statistics on the compliance rate thus far;

  • More than 90% of the first 12,000 small and micro employers who have reached their staging date have complied with their duties; just under 10% therefore have not and will be potentially facing penalties. Don’t let this be you.

There is a Duties Checker List designed specifically for the small and micro employer; please use it. 

It has been noted by The Pensions Regulator, where an employer uses an agent e.g. Armstrong Watson Payroll and Employee Services, there is evidence of confusion on who will do what. The biggest non-compliance in this area has been the Declaration of Compliance process. Armstrong Watson’s payroll service carries out this task on behalf of their customers, but not all third party agents do this. It is therefore really important employers understand what their agent/service provider will and won’t do on their behalf. The Pensions Regulator can issue a Third Party notice of non-compliance, but only likely to do so, where the third party hasn’t complied, rather than because the employer was ignorant of the Service Level Agreement content.

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