The honeymoon period for auto-enrolment compliance is over. Offenders can expect to be hit hard.
Since the initial introduction of pension auto-enrolment in 2012, The Pensions Regulator (TPR) has often proved willing to give the benefit of the doubt to businesses that have failed to be fully compliant – especially smaller firms where limited resources may have contributed to a lack of understanding of exactly what was required.
But let no one be in any doubt that the gloves are now well and truly off. The regulator has announced a new crackdown on firms that are not satisfactorily carrying out their duties in this respect. With immediate effect, those suspected of breaches will be targeted with short-notice inspections.
Originally spot checks tended to be done on a regional basis, focusing on business sectors considered to be particularly at risk and those where there was evidence of non-compliance because, for example, allegations may have been made by an employee or information may have been passed on by another authority. Random test samples were also commonly used.
But now TPR reports that it is making focused use of data and intelligence streams to home in on specific firms who are failing to enrol staff into a pension or who fail to make contributions or correct contribution levels. These can expect a knock on the door which results in enforcement action.
Visits, which may involve taking statements from individuals and/or interviewing them, may follow reasonable notice being given but there will also be occasions when the regulator decides to inspect without prior notice. It may, for example, have reason to believe that documents will be destroyed or altered if advance warning is given.
Other employers suspected of aspects on non-compliance may be contacted by phone and required to answer specific questions and provide information requested.
TPR may also decide to contact third parties it believes may be in possession of relevant information or documents. These may include accountants, IFAs and others giving advice or providing business services to the employer, trustees or managers of occupational pension schemes or providers of personal pension schemes.
Additionally, it may contact employees or, in cases of suspected prohibited recruitment conduct, potential employees.
Failure to co-operate with such investigations is a criminal offence and can lead to a fine or to being taken to court. In the first instance there will probably be a compliance notice issued outlining the necessary actions/remedies to be taken by a specific date but, if the employer then fails to take the necessary steps to comply, this is likely to be followed by a fixed penalty notice of £400. This could then potentially be followed by an escalating penalty notice.
Such a notice will specify the date by which the employer must comply, after which an escalating penalty will accrue at a daily rate until the compliance is achieved. The actual amount involved will be based on the number of employees in the firm’s PAYE scheme – varying from £50 a day where there are between one and four employees to £10,000 a day when there are 500 or more.
In its Compliance and Enforcement Quarterly Bulletin January-March 2019, TPR reports that it had seen a 15% increase in the use of its powers from the previous quarter and that, of particular note since August 2018, had been a significant increase in the number of penalties issued on late contribution cases.
It simply isn’t worth risking being in contravention of any aspect of the auto-enrolment regulations. All employers should be confident they can demonstrate compliance if they receive notice that TPR will be paying them a visit. This is no longer something that can just be swept under the carpet.
They should ensure they are in a position to provide any relevant records, such as copies of opt-out notices and of opt-in and joining notices, along with evidence of enrolment into their pension scheme and of contributions paid – which may be contained in payroll records.