UK: Clyde & Co Research Finds Whistleblowing Reports To The Pensions Regulator Rise 29% In A Year
Last Updated: 17 May 2016

The number of whistleblowing reports made to the Pensions Regulator has surged by almost a third (29%) in the past year, according to global law firm Clyde & Co.

Clyde & Co says that the sharp rise in whistleblowing reports raises concerns that many SMEs may face enforcement action as a result of non-compliance with auto-enrolment regulations.

Data obtained directly from the Pensions Regulator shows that there were 1,968 whistleblowing reports* made in 2014/15** compared with 2,545 in 2015/16.

Clyde & Co says that the Pensions Regulator has significantly stepped up its enforcement action over the past year. The number of enforcement actions used against employers has risen from 1,947 in 2014/15 to 8,812 in of 2015/16, more than a four-fold increase.

Under the new workplace pension's law, which came into force in 2012, all businesses must enrol all eligible employees into a pension's scheme or face enforcement action from the regulator.

The deadline for compliance is dependent on the number of staff - businesses with the highest number of employees, 120,000 and over, faced the first compliance deadline in October 2012. Deadlines for the smallest businesses, those with 30 or less employees, are allocated based on PAYE reference codes. Some have already reached their compliance deadlines whilst others are still waiting, the final staging dates are in February 2018.

Clyde & Co, which has a pensions practice that acts for trustees, employees and insurers, explains that failure to comply with the auto-enrolment regulations can lead to fines of up to £10,000 per day, depending on the size of the business.

Mark Howard, Head of Pensions at Clyde & Co, comments: "The final stages of the auto-enrolment process are likely to be the most challenging, as there are so many employers that will need to enrol their employees."

"On top of this, the SMEs yet to face their enrolment deadlines are not going to have the support of HR departments to help them deal with the administrative headache of enrolling their employees into a pension scheme. "

"The Regulator has put out a lot of guidance aimed at SMEs, but even so it is not surprising that we are seeing the number of whistleblowing and enforcement actions increase as the number of employers subject to auto-enrolment grows substantially."

Clyde & Co points out that even larger employers have struggled with the auto-enrolment process. Swindon Town FC was fined over £20,000 in April 2016 after it failed to comply with the regulations.

The football club could have paid an initial fixed penalty notice of just £400, but after failing to pay and then repeatedly ignoring several warning notices, the club eventually reached a settlement to pay backdated pensions contributions. However, after the deal, the club was late to pay what it owed, leading the fine to escalate to a total of more than £20,000.

Mark Howard comments: "This substantial fine shows that the regulator has teeth. Businesses cannot afford to take their eye off the ball or they could get hit with a fairly hefty escalating fine."

Clyde & Co says that the most commonly used enforcement action is to issue a compliance notice – an order to take steps to comply with the legislation.

Mark Howard warns that "Compliance notices may seem harmless but failure to comply can result in a daily fine which could seriously hinder many SMEs profitability."

The Regulator has also issued fixed penalty notices and unpaid contribution notices. SMEs should be concerned about the latter, if contributions are unpaid for too long the Regulator can order that the employer is liable to pay the employees' contributions as well as their own, adds Clyde & Co.

"As many expected the regulator is ramping up its efforts to crack down on non-compliance. Fines handed out should serve as a warning that SMEs need to ensure they plan well in advance to avoid enforcement action," adds Mark Howard.

"Auto-enrolment is not going to disappear and the paper work can often take far longer than expected. SMEs should not bury their heads in the sand and hope the problem will go away – they need to identify staging dates, check if current pension plans are sufficient or what needs to be done to bring them up to standard and which employees may need to be enrolled." 

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