Pinsent Masons and Sanctum Software
21 July 2025
UK employers risk significant penalties and other expensive complications for getting auto-enrolment wrong – even if inadvertently.
Auto-enrolment has been in place since 2012 and payroll and compliance issues get compounded over time. Relatively minor issues can start to mount up. If small errors go unnoticed, they can become a material issue later, as the error is multiplied across a population of employees over each passing year.
We are now seeing significant remediation costs, industrial relation problems and even regulatory exercises with the Pensions Regulator and HMRC.
Fortunately, it is possible to resolve these things successfully as long the issues are spotted and addressed as soon as possible.
What are the common issues to watch out for?
Pensionable pay
Contributions are supposed to be based on a definition of pensionable pay used by an employer. This can be something like basic pay, total earnings or some other variation. Qualifying Earnings was a definition of pensionable earnings introduced as a new alternative option for auto-enrolment schemes, but can be tricky to get right.
We are seeing many cases of misalignment between employment contracts, employment practice, the rules or T&Cs of the pension schemes used, and what is actually paid to the workplace pension by way of contributions. In some cases there are underpayments and in some cases overpayments.
Resolving this is complex business.
Issues to watch out for are Union relationships, unlawful deduction of wages claims and restoring workers (including former workers) to the position they should have been in This can involve complex calculations to estimate any lost investment growth the worker would have received had the correct contributions been paid on time.
This is a hot regulatory issue and AE contributions form part of the pay package. AE is a flagship pensions policy which a series of Governments have strongly supported.
Tax reliefs
Some workplace pension schemes sort out tax relief on receipt of contributions (relief at source). Some workplace pension schemes require employer payroll to sort out tax relief before sending the contributions to the pension scheme (net pay).
We’ve seen instances where a change in payroll personnel has led to a mistaken change from the way tax reliefs are processed (or not) by employer payroll.
This means contributions are either getting no tax relief – or double tax relief. In the latter case, money would need to be refunded to HMRC, which is far from ideal.
Resolving this becomes a complex exercise with HMRC and the pension scheme / provider.
Compliance paperwork
How much is the fine for failing to fill in a form?
Well, it can easily get to six figures – and we’ve seen instances of regulatory penalties as high as £350,000.
This typically arises where the declaration of compliance is overlooked for a long period. Although there may be no wider issues with auto-enrolment compliance, failure to complete the paperwork can be a serious issue due to the way the Pension Regulator’s scale of penalties works.
Early detection is key
These sorts of issues often crop up in M&A activity and or as a result of action by the Pensions Regulator or HMRC. Changes of payroll systems or providers can also uncover problems.
The issues can be resolved but these circumstances are not ideal.
Ideally, these issues should be flushed out before they pose a threat to employer sales or attract regulatory attention. Key to this is revisiting process, procedure and compliance arrangements – as well as the employment contract terms or pension scheme rules and T&Cs which will typically contain the pensionable pay definition.
The CIPP has teamed up with Pinsent Masons LLP and Sanctum Software to determine the least disruptive way (on both a personal and organisation level) for employers to engage with the task of early detection and devise a multi-disciplinary remedial plan. As part of this project, the survey aims to gather intelligence from the payroll community concerning the obstacles to early detection, be they procedural, technological, or structural, so as to address these obstacles in a forthcoming White Paper.
The collected information will be handled confidentially, and all data anonymised prior to analysis.