Penalties are already being imposed on those employers which fail to comply with their auto-enrolment duties

We're almost a year on from the first auto-enrolment and over a million workers have been auto-enrolled into an eligible retirement saving arrangement.

By 2018 the government expects that between 6 million and 9 million people will be saving more into a pension or joining a scheme for the first time.

We've discussed the auto-enrolment requirements for what seems like an age, but are employers equally aware of the penalties for non-compliance? And will the Pensions Regulator really enforce those penalties?

On 20 June 2012 the Regulator issued a statement explaining its strategy for tackling non-compliance with the auto-enrolment requirements.

Chief executive of The Pensions Regulator, Bill Galvin, said:

"Every employer needs to play their part to make these pension reforms work, and our goal is to make that task as straightforward as possible. For those that do not engage, however, we want to make it clear there are consequences. We'll apply the law fairly and where we find consistent or wilful non-compliance we will use our powers, so that employees do not miss out on contributions they are due."

Not only can employers be penalised for failing to comply with the requirements. They can also be penalised for offering incentives to their workers to opt-out of an auto-enrolment pension arrangement. Apparently this includes refusing to employ someone because they want to join the company pension scheme.

So what powers does the Regulator have?

  • Statutory Notices: The Pensions Act 2008 gives the Pensions Regulator the power to issue statutory notices requiring employers to fulfil certain duties. Non-compliance with such a notice may then result in further financial penalties.
  • Fixed Penalties: The Regulator has the power to issue fixed penalties of £400 to an employer.
  • Escalating Daily Penalties: Escalating (daily) penalties are set at a level to fine an employer the cashflow benefit they are getting by not complying. This is to ensure there would be no incentive for an employer simply to pay a fine and not comply. The escalating daily penalty for an employer of 1-4 workers is just £50, however an employer with over 500 workers may be subject to daily escalating penalties of £10,000. 

Which employers have been naughty? And what has been done to punish them?

Key issues for the Regulator have been the readiness of employers and the standard of communications to employees.

So far the Regulator has opened 89 investigations into possible non-compliance, issued 39 informal warnings and last month the Regulator issued its first compliance notice. The Regulator initially declined the opportunity to 'name and shame' that employer. However, it transpires that the recipient of the notice was Dunelm Mill (a homewares retailer). The notice was issued because Dunelm Mill had not registered online as having a compliant scheme. Dunelm Mill had, however, been unable to register online and upon receipt of log-in details in September corrected the situation. In light of the circumstances the Regulator acknowledged that this was out of Dunelm Mill's control and consequently no fine was issued and the warning was effectively waived.

Whilst the Regulator may be keen to illustrate that it won't abide non-compliance it does appears to be taking a proportionate approach and is giving employers second chances in the form of issuing warning letters. So far it has issued 38 of these letters. We will wait to see whether these result in further action or whether employers are now sitting up and taking notice of their duties in light of the Regulator's enforcement powers.

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