Employers should consider a range of measures to help reduce the risk of non-compliance
Every six months, the Pensions Regulator publishes a compliance and enforcement bulletin that details its activities, including the number of information, inspection, compliance, unpaid contribution, penalty and escalating penalty notices it has issued to employers who have failed to comply with their automatic enrolment duties.
Between July and the end of December 2023, the regulator issued a total of 75,052 of these notices, including 29,489 compliance notices requiring an employer to fix a breach within a set timeframe.
This level of activity indicates that compliance isn't always straightforward. However, it's important for employers to have processes in place to avoid errors and to review those processes periodically to check they are operating as they should.
Seven steps to compliance
- Have a clear process to understand where
responsibilities sit.
The separate responsibilities of the employer, payroll provider and pension provider need to be clearly understood and systems are needed to make sure each fulfils their responsibilities consistently and accurately, irrespective of any staff changes. - Adopt a system to assess the workforce.
Employers need to determine which staff are eligible to be automatically enrolled (eligible jobholders) and which can be offered access to a pension instead (non-eligible jobholders and entitled workers). This system must be capable of identifying those who change category during their service; for example. when a non-eligible jobholder becomes an eligible one. - Ensure that non-standard workers are assessed
individually.
Those who may need individual assessment include consultants, contractors, casual workers, secondees or those who spend time working abroad. Whether these workers need to be automatically enrolled is dependent on a factual assessment in each case by reference to case law and guidance and employers may need legal advice. - Adopt a system to periodically certify the qualifying
pension scheme.
Schemes used for automatic enrolment compliance must meet the applicable quality standard, particularly where the employer chooses the contribution structure to apply. Minimum standards are needed and calculations may be required, taking into account both the definition of pensionable pay used and the percentages payable by employer and employee. - Adopt effective internal controls.
These need to make sure that the correct contributions (including those deducted from pay) are paid to the pension provider within the timescales required by law. - Understand the limited exceptions.
In some cases, employers have discretion to enrol automatically rather than an obligation, but these exceptions are limited; in the main, to statutory directors, partners of limited liability partnerships, workers with lifetime-allowance tax protection and workers giving or receiving notice within six weeks of their automatic enrolment date. They do not include workers who ask to use their own pension scheme or to receive cash instead; the correct approach for such workers is to enrol them and they can opt out if they wish. - Be aware that inducements to opt out are prohibited by
law.
The wording of pay, pension and flexible benefits packages should recognise this. A common approach to mitigate this risk is for flexible benefit arrangements to require a minimum level of pension saving and offer flexibility only above that level.
Osborne Clarke comment
Automatic enrolment has vastly increased pension saving and the number of pension savers, and its importance as a matter of public policy is clear from the Pensions Regulator's proactive approach to enforcement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.