What do Accountagility Limited, Skarla Retail Limited and SE Twenty Ltd all have in common? The simple answer is that they’ve all been caught by The Pensions Regulator (TPR) for breaching pensions auto-enrolment law.
Accountagility Limited was recorded as “Employer non-compliant, subject to further action (EPN paid)” and fined £14,000. The same was applied to Skarla Retail Limited – it was fined £24,500 – and SE Twenty Ltd was placed in the same category and fined £24,900. The breaches occurred between 1 July and 31 December 2022 (TPR, 2023).
Pension auto-enrolment
The automatic joining of workers to a company pension scheme, known as auto-enrolment, is celebrating its 11th birthday in October 2023 after rollout was finally completed in February 2018.
Nathan Long, a senior pension analyst at Hargreaves Lansdown, says auto-enrolment sought to tackle a huge impending social problem of people not having sufficient monies squirrelled away to support themselves in retirement. “It is so important in fact that the sniffer dogs at The Pensions Regulator were unleashed to track down the employers that are not complying with the rules,” he said. “The Pensions Regulator has issued fines to employers on thousands of occasions.”
Indeed, between the start of TPR’s oversight (in 2012) and 31 December 2022, there have been some 719,930 enforcement actions (TPR, 2022a); between 1 July and 31 December 2022, there were 72,531 actions. The fines meted out can run up to £10,000 per day for the largest firms, but even the smallest firms can see fines of £50 or £400 per day. Apart from the fines noted above, penalties range from a lowly £272 (Perfect Breaks Limited) up to a whopping £87,500 handed to London Storage & Distribution Ltd (TPR, 2022b). Five-figure penalties are clearly not uncommon.
Anyone doubting whether The Pensions Regulator actually collects these fines and follows through on non-payment with court action would do well to look at the regulator’s website
Anyone doubting whether The Pensions Regulator actually collects these fines and follows through on non-payment with court action would do well to look at the regulator’s website – in particular, the section on penalties.
The rules
For those not yet familiar with the rules, employers of all shapes and sizes – even those with just one member of staff – are tasked with ensuring those eligible are saving for retirement. Eligible staff are those aged between 22 and state pension age who earn over £10,000 per year. Pension contributions for these employees currently need to be at least 8 percent of “qualifying earnings”, with at least 3 percent coming from the employer. These “qualifying earnings” are effectively all earnings between £6,240 and £50,270, meaning there is no need to pay pension contributions on the first £6,240 an employee earns.
“It may be job done for the government,” says Nathan, “but it’s one that is never truly complete for employers due to their ongoing responsibilities as part of the rules.” These rules can be broken into several steps:
1) Join staff to the company pension when they become eligible
Employers need to keep an eye out for newly eligible staff. The obvious group are new employees. Nathan says that providing they (presently) earn over £833 per month or £192 per week and are between 22 and state pension age, employers will need to put them in. He adds: “Be careful with those people who weren’t enrolled first time around as they didn’t earn enough or were too young, because when their circumstances change, you’ll need to put them in too.”
As eligibility is measured by pay period, even a short pay spike could mean employers have to enrol staff members, so remain vigilant. It is possible to offset this disruption by deferring entry to the pension by up to three months.
As eligibility is measured by pay period, even a short pay spike could mean employers have to enrol staff members, so remain vigilant
Employers should not ignore those who are not enrolled; if they ask to join, employers will have to enable this and pay contributions if they earn over £520 per month (£120 per week).
2) Deduct the correct level of contribution from an employee’s pay
Nathan says that deducting the correct level of pension contribution should be a matter of course for most employers, particularly if they outsource their payroll or use a provider’s payroll software. He advises firms to “be extra vigilant when pay changes or bonuses are paid as these events could lead to change in the amount that needs to be deducted”.
Deducting the correct level of pension contribution should be a matter of course for most employers, particularly if they outsource their payroll or use a provider’s payroll software
3) Certify the pension scheme meets the requirements at least every 18 months
Certification is simply an audit of the pension scheme to make sure the employer has paid the right amount to the right people. There is no need to submit anything – it is a self-certification – but employers need to have their house in order should the regulator come calling, as it increasingly does.
4) Re-enrol any staff that are not in the scheme every three years
Lastly, re-enrolment of those who have opted out or previously left the scheme must happen every three years, around the anniversary of an employer’s staging date (start date for auto-enrolment). This ensures staff are continually given the opportunity to save for retirement. Once this exercise is complete, the results must be passed on to the regulator.
Don’t fall foul of any changes to the rules
The government has done a pretty good job of improving the rules as it goes along, even though they may seem onerous at first. That said, for some time, pension providers and a cross-party think-tank, the Social Market Foundation (SMF), have been calling on the government to reform the rules on pension auto-enrolment.
At the start of March 2023, the government publicly backed a bill to expand auto-enrolment so it includes younger and lower-paid workers. As the government commented (GOV.UK, 2023): “Lowering the age at which eligible workers must be automatically enrolled into a pension scheme by their employers from 22 to 18 will make saving the norm for young adults and enable them to begin to save from the start of their working lives.”
The Pensions (Extension of Automatic Enrolment) (No.2) Bill was introduced by Jonathan Gullis, MP, as a Private Members’ Bill. If passed, it will grant two extensions to automatic enrolment – it will abolish the lower earnings limit for contributions and will reduce the age for automatic enrolment to 18 years. In practical terms, this means anyone over 18 will have to be automatically enrolled in a pension scheme regardless of their income level if the bill is passed.
Comment from The Payroll Centre noted that “it has been estimated that lowering the auto-enrolment age will allow younger workers to save over £20,000 more into their pension pots by the time they reach state pension age, remembering of course that by the time these employees reach their respective retirement age they will be at least 68”.
At the time of writing (August 2023), the bill had cleared the House of Commons and was halfway through the Lords.
What will this mean for me?
To reiterate, as the law currently stands, employers must automatically enrol their workers into a workplace pension scheme and make contributions to their pension if they are eligible. There is a minimum level of contributions – 8 percent – but this can be higher depending on pension scheme rules. In some schemes, employers can pay more, allowing the worker to pay less, as long as the total legal minimum contribution is met. Further, employees can opt out of the scheme if they want to, for example if they can no longer afford to make contributions.
As the law currently stands, employers must automatically enrol their workers into a workplace pension scheme and make contributions to their pension if they are eligible
The government had previously said it intended to implement changes to the pension auto-enrolment rules by the mid-2020s. However, the SMF wanted the government to speed up its plans.
The provisions in the bill will not result in any immediate change but will give the Secretary of State powers to amend the age limit and lower the qualifying earnings limit for automatic enrolment in time. There will be a statutory requirement to consult and report on the outcomes to inform the implementation approach and timing before using these powers, so it is likely to be a while yet before these proposals become law. For the moment, employers just need to keep a weather eye open.
To finish
The key message for employers of all sizes is that auto-enrolment is an ongoing exercise and, crucially, requires ongoing compliance with any rule changes. First up will be the changes from the bill, if passed, but there may be more in time; employers need to keep their wits about them.
While it may seem The Pensions Regulator is out to get small businesses, the opposite is true. Its website is a great source of information for businesses of all shapes and sizes.
