Automatic enrolment update
01 March 2019
This article was featured in the March 2019 issue of the magazine.
The Pensions Regulator provides research findings and details of recent compliance activity
Nearly ten million people are now saving for their retirement thanks to the success of automatic enrolment and contributing into a workplace pension has now become the norm.
Staff now expect a pension as part and parcel of their employment and The Pensions Regulator (TPR) and the Department for Work and Pensions’ advertising campaign encourages staff to get to know their pension and appreciate the benefits.
Research published recently by TPR (https://bit.ly/2RF8nQz) shows that the vast majority of staff are continuing to save more into their pension following the increases in minimum contributions in April 2018.
The on-going duties survey showed less than 2% of staff in medium, small and micro businesses asked to leave their workplace pension as a result of the increase.
More than 80% of employers said that they communicated the increases in contributions to their staff. Medium sized and small employers did this via email or letter while small employers tended to inform their staff face to face.
Employers surveyed also said they were confident they could provide accurate responses to requests for information from their staff about automatic enrolment. The survey showed that the larger the employer, the more likely it is to be asked for advice on workplace pensions by their staff with 25% of micro, 45% of small and 73% medium sized employers being asked.
The vast majority of employers surveyed said that they find their ongoing duties quick and straight forward to complete, spending less than two hours a month on them. To comply with the law, employers have a number of tasks to complete which includes maintaining the correct contributions, keeping accurate records and re-enrolling eligible staff who have opted out of their pension, back in.
The vast majority of employers are compliant with their automatic enrolment duties but TPR will take action if an employer is non-compliant. Automatic enrolment is a continuing process and does not end when staff have been put into a pension.
...the company failed to amend its payroll or update the pension scheme rules
TPR’s most recent compliance and enforcement bulletin (https://bit.ly/2DoSfyR) published autumn 2018 included a case study of an employer that had automatically enrolled its eligible staff into a master trust pension scheme in 2013. The scheme was ‘self-certified’ by the employer.
Employers using certification to calculate contributions must re-assess their workforce every eighteen months to ensure that it still meets the relevant criteria.
In 2016, the company assessed the workforce and realised that the circumstances had changed: the contributions should have been calculated another way. (In this case, the company had originally based calculations for pensionable earnings on 85% of total earnings.) The changes meant that the calculations for pensionable earnings would be based on 100% of their total earnings. However, the company failed to amend its payroll or update the pension scheme rules, meaning that the pension contributions paid fell below the minimum required by law.
The employer wrote to their staff to explain they would meet the full costs of the underpaid employer contributions (over £350,000), plus an additional allowance to compensate for lost investment returns. The company got in touch with TPR in 2017 and said that there had been an oversight and they had failed to make required changes because the business was very busy.
TPR was not satisfied with their explanation or proposed rectification plan and, in April 2018, issued the company with a notice requiring them to pay the shortfall of both employer and employee contributions, adding up to a total of over £700,000. The employer confirmed that it had paid the outstanding amount in July 2018 and is now compliant with its automatic enrolment responsibilities.
The message to employers is that it’s important they keep track of their ongoing automatic enrolment responsibilities and be aware of any changes which might affect pension contributions. Even if automatic enrolment is outsourced to an adviser, it is the employer that is legally responsible.