Workie bares his teeth!

25 October 2018

This article was featured in the December 2018 issue of the magazine.

Helen Hargreaves MSc ChFCIPPdip, CIPP associate director of policy, reviews TPR’s enforcement powers giving examples of their application

When the roll-out of automatic enrolment began back in 2012, The Pensions Regulator (TPR, ‘the Regulator’) took a very welcome but surprisingly softly-softly approach to compliance, preferring to help educate those who were confused or unsure about their obligations rather than immediately penalising the slightest infringement. This approach was reinforced in 2015 with the introduction of Workie, the friendly and genial monster encouraging Britain’s workforce to not ignore their workplace pension.

But as more and more employees have joined a workplace pension scheme, behind the scenes the compliance activity of TPR towards employers has gradually been increasing. Workie has been showing his teeth – well, he would have if he hadn’t already been pensioned off.

The Regulator says that its approach to compliance is based on preventing problems developing in the first place: by being clear about what they expect from employers and offering a range of online resources for employers and their advisers to help them through automatic enrolment, the trustee toolkit, guidance on scams, and information on other areas including funding and investment, scheme governance and record-keeping.

The Regulator’s enforcement options

So, just what are the enforcement options open to TPR and how have they been applying them?

If TPR decides to take regulatory and enforcement action their options include:

issuing notices that require individuals, companies or third parties to take specific action within a certain time
recovering late or missing payments from an employer on behalf of a scheme
issuing a freezing order where a scheme plans to wind up so that they can explore any concerns and encourage negotiations
banning trustees who they don’t consider fit and proper for the role
issuing fines for breaches of the law
prosecuting certain offences in the criminal courts.

Whilst attention naturally focuses on the fines and prosecutions, TPR’s initial approach is often informal action whereby it can issue guidance and instruction by telephone, email, letter and in person. The Regulator may also send warning letters confirming a set time frame for compliance with the duties.

The next option is a statutory notice which is mailed out to employers directing them to comply with their duties and/or pay any contributions they have missed or are late in paying. The notice may tell the employer that they must pay all the unpaid employer contributions and their staff members must pay theirs, unless of course the employer chooses to pay it for them. But, instead, as part of that enforcement action, TPR may instruct the employer to pay both their own and their staff member’s unpaid contributions to put staff in the position they would have been in if they had complied on time; this may include backdating contributions to the day that the member of staff first met the age and earnings criteria to be put into a scheme.

...compliance is based on preventing problems developing...

TPR may also estimate and charge interest on unpaid contributions.

A penalty notice is used to punish persistent and deliberate non-compliance. A fixed penalty notice is £400, payable within a specific period and may be issued if employers don’t comply with statutory notices. It’s important to note that TPR can issue a fixed penalty without having first issued a statutory notice.

TPR can also issue an escalating penalty notice for failure to comply with a statutory notice and pay contributions that are due. This penalty has a prescribed rate of £50 to £10,000 per day depending on the number of staff employed by the business.

The ultimate enforcement action is of course prosecution of those employers that deliberately fail to enrol eligible staff or knowingly include false information in a declaration of compliance.

Spot-checks

In July 2018, the Regulator announced that employers across the UK suspected of providing false or misleading information to it about how they were meeting their automatic enrolment duties, would be targeted with short-notice inspections. The spot-checks would also target employers that were still non-compliant despite penalty action.

The Regulator’s director of automatic enrolment, Darren Ryder, said at the time: “It is an offence for employers to provide TPR with false information on their declaration of compliance, but there are tell-tale signs indicating an employer might not be telling the truth. We can also detect employers who are failing to meet their automatic enrolment duties despite being issued with a penalty and we will take action if we suspect either of these is the case.

“The vast majority of employers are meeting their responsibilities and automatic enrolment is now business as usual. But where employers fail to comply with the law, we will use our full range of our powers to ensure staff get the pensions they are due.”

Employers that have been given an escalating penalty notice for non-compliance but have still failed to meet their responsibilities, along with a small number of employers selected at random, will also be subject to the spot checks.

...will use our full range of our powers to ensure staff get the pensions they are due.

Court action

There have been some very high-profile court cases, which have made national headlines because of non-compliance with the automatic enrolment duties, and in a landmark case, a third party rather than the employer, has also been successfully prosecuted.

Stotts Tours (Oldham) – A bus company and its managing director were ordered to pay more than £60,000 after they admitted trying to deliberately avoid giving their staff workplace pensions.

In November 2017, Stotts Tours (Oldham) and Alan Stott pleaded guilty to a total of sixteen offences of wilfully failing to comply with the law on workplace pensions – the first such prosecution by TPR.

When they appeared at Brighton Magistrates’ Court for sentencing in February 2018, Stotts Tours (Oldham) was ordered to pay a £27,000 fine, £7,400 costs and a £120 victim surcharge. Alan Stott was ordered to pay a £4,455 fine and a £120 victim surcharge. This is on top of the £14,400 in civil fines that the employer already owed for failing to comply with the law on automatic enrolment.

Stotts Tours (Oldham) was also told to pay an estimated £10,000 in backdated pension contributions for its staff, as well as paying all ongoing contributions that fall due, or face further enforcement action from TPR.

Crest Healthcare – In May 2018, a healthcare company and its managing director were ordered to pay more than £20,000 after they admitted misleading TPR about providing their staff with a workplace pension.

Birmingham-based Crest Healthcare and managing director Sheila Aluko each pleaded guilty to one charge of knowingly or recklessly providing false or misleading information to TPR and two counts of wilfully failing to comply with their automatic enrolment duties.

A whistleblower prompted the investigation into Crest Healthcare after contacting TPR to complain that workers at the company suspected that they had been misled into falsely believing that their pension scheme was up and running. Contributions were being taken from the pay packets of the workers, but Crest Healthcare would not give them information about their scheme.

Sentencing the company and Aluko at Brighton Magistrates’ Court, district judge Teresa Szagun said that it was important to show that individuals and companies did not benefit from avoiding their automatic enrolment responsibilities.

Workchain – Senior staff at a national recruitment agency tried to save money by impersonating their temporary workers to opt them out of their workplace pension scheme.

Workchain Ltd owners and directors Phil Tong and Adam Hinkley encouraged five senior staff at the company to get the temporary workers out of the scheme so the company could avoid making pension payments on their behalf.

Financial controller Hannah Armson, human resources and compliance officer Lisa Neal, and branch managers Martin West, Robert Tomlinson and Andrew Thorpe, worked together to opt workers out of the NEST (National Employment Savings Trust) pension scheme using its online system.

Derby-based Workchain (formerly known as Smart Recruitment UK Ltd) would have been able to avoid paying pension contributions if the offence had not been detected.

A joint investigation into Workchain involving TPR, the Employment Agency Standards Inspectorate, Derbyshire Constabulary and Nottinghamshire Constabulary was launched after NEST reported its concerns about Workchain to TPR in May 2014.

Hashmukh Shah – In a landmark case, the accountant of a London cafe has admitted falsely claiming to TPR that staff had been enrolled into pensions.

The Regulator launched an investigation into Gran Caffe Londra in Knightsbridge, run by Primadell Ltd, after the company missed its deadline to automatically enrol staff into a pension in October 2015.

When TPR arranged an inspection of the business, accountant Hashmukh Shah, 63, falsely declared that the company had met its duties. When later interviewed by TPR, Shah admitted purposely misleading the Regulator. This prevented an inspection of the business which would have uncovered the employer’s failure to automatically enrol its staff.

Shah’s false declaration paused TPR’s investigations for more than a year, during which time staff continued to be denied the pension contributions that they were entitled to.

At Brighton Magistrates Court, Shah admitted knowingly or recklessly providing false or misleading information to TPR. Deliberately providing false information to TPR about compliance with automatic enrolment duties is an offence under section 80 of the Pensions Act 2004.

It is the first time that TPR has prosecuted a third party, working on behalf of an employer, for this offence. Gran Caffe Londra eventually became compliant in March 2018 and the company has backdated pension contributions for its staff.

Information about an employer’s duties for automatic enrolment is available on TPR’s website: www.thepensionsregulator.gov.uk.