Skip to content

Insights

30 October 2017

Sabre rattling Pensions Regulator – red in tooth and claw?

Clearly it is a busy time for the Pensions Regulator (TPR). In its Compliance and Enforcement bulletin for April - June 2017 TPR states that for just this 3 month period, 4,794 fixed penalty notices (a fixed fine of £400) have been issued and 1,384 escalating penalty notices have been issued. (These are daily fines ranging from £50 to £10,000 per day depending on the size of the employer.) The message from TPR is clear – if you don’t fulfil your obligations in relation to pensions auto-enrolment, we will take action.

TPR is responsible for enforcing auto-enrolment.  The introduction of this obligation – a phased roll out across all employers - has now been completed. New employers taking on an employee for the first time after 1 October 2017, whether a business with just a couple of employees or a large multi – national,  will no longer have a “staging date” but must comply with auto-enrolment obligations from the first day on which they employ an individual. This is known as the “duties start date”. (Employees that are aged between 22 and state pension age, ordinarily work in the UK and earn over the minimum threshold amount of £10,000 per annum must be enrolled into a qualifying pension scheme. Auto-enrolment can be postponed for up to three months provided the employer notifies its staff that it has decided to do so.)

Of course, whether it is really cost effective to issue over 4,790 fixed penalty notices is another question.  The administrative costs involved in doing so must be pretty substantial. TPR claims that it acts in proportionate manner. Does it really do so when failure to complete the Declaration of Compliance – not, for example, failure to pay the required level of pension contributions – is the most common reason for imposition of a fixed penalty notice? A Declaration of Compliance is a Declaration confirming that the employer has carried out its duties such as enrolling staff into a qualifying pension scheme and includes certain information such as some details about the scheme concerned, the number of employees who have been enrolled, the number who have not been enrolled (as they do not meet the criteria) and so on. It must be completed within 5 months of the duties start date.

Just recently however, TPR has indicated that it is prepared to take even stronger action.  It has launched its first prosecution against an employer for failure to comply with its auto-enrolment obligations.  A bus company based in Manchester, Stotts Tours (Oldham) Limited (Stotts Tours), is accused of failing to comply with auto-enrolment obligations relating to 36 members of its staff by not enrolling them into a pension scheme.  Alan Stott, managing director of the company, is accused of consenting or conniving in the offence, or allowing the offence to be committed by neglect.

The approach in relation to Stotts Tours contrasts with a less aggressive stance in respect of Swindon Town Football Club.  The Club failed to auto-enrol various staff into a pension scheme.  Over a period of time TPR issued fixed and escalating penalty notices against the Club which ultimately amounted to fines of over £22,900. However, it does not appear to have considered criminal prosecution against the Club, which is now being pursued against Stott Tours.

Employee contribution rates to triple

Even if employers have successfully completed the auto-enrolment process so far, they should be aware that there are changes ahead.  Contribution rates for employers and for employees are due to increase. Employers should have started to receive information about these changes from the TPR. 

At the moment auto-enrolment requires pension contributions of 2% of qualifying earnings in total.  The employer is required to pay 1% of this amount with the balance generally being paid by the employee.  As of April 2018 however contribution rates will increase as follows:

  Employer contribution rates  Contribution rates usually paid by employee Total pension contributions
To April 2018  1%  1%  2%
April 2018 – end March 2019    2%  3%   5%
April 2019 onwards 3%  5%  8%

 The statutory obligation relates to the employers’ contribution rates and the total contribution rates. Legislation does not impose a minimum employee contribution.

It may be sensible for employers to inform their employees of these forthcoming increases.

There is concern that these higher contribution rates may increase the numbers of employees who choose to opt out of the pension scheme.  However, anecdotal evidence from other countries suggests that opt out rates do not substantially increase until contribution rates are close to 7-10%. Time will tell what impact it may have in the UK.

Employers need to be fully aware of these requirements and to comply with them failing which they can be liable for significant penalties. 


This article first appeared in Pharmacy Business.

The above is a general overview and we recommend that independent legal advice is sought for your specific concerns. If you require further information in relation to the points raised in this article you should contact Esther White, a solicitor in the pharmacy team at Charles Russell Speechlys LLP. Esther can be contacted on esther.white@crsblaw.com.

TOP