The government has introduced many measures to help businesses through these tough economic times, but an important area that has continued to apply unchanged (other than some easements around payment timings) is employers' pension obligations under auto enrolment. Here, with a defined contribution context in mind, we look at some of the key issues on that and why it is important for employers to be vigilant about complying with auto enrolment.
The Pensions Regulator has issued some useful COVID-19 guidance on dealing with auto enrolment during this period, including in relation to employees who have been furloughed under the Coronavirus Job Retention Scheme (CJRS).
It has just updated this guidance to recognise that:
- from 1 July 2020, staff on furlough under the CJRS may work part of the time for their employer
- for claims starting on or after 1 August 2020, employers will no longer be able to claim a grant in relation to any employer pension contributions.
In particular, it includes more detailed information about the pensions element of the CJRS available for claims ending before 1 August 2020 and also, more generally, guidance on an employer’s automatic enrolment duties for staff on furlough.
Some key practical points are:
- Employees themselves may wish to opt out from contributing to the pension scheme (or reduce their contributions, if they can, under the pension scheme rules). If they do so, under auto enrolment employers must remember to re-enrol these employees at the next re-enrolment date if they satisfy the relevant conditions at the time.
- Employers must take care not to induce or encourage employees to opt out from auto enrolment (which is banned under pensions legislation) and any measures proposed must bear this in mind. In particular, communications to employees on pensions must be worded carefully.
- Employers should ensure that payroll processes are up to speed with any changes in pay that may have taken place which might have a knock on effect on pension calculations. Though this is important at any time, with many more employers possibly having made adjustments to deal with economic difficulties, there could be increased scope for error.
- Employers may be considering making changes to their pension contributions going forwards, especially in light of proposed changes under the CJRS which will shift more costs generally onto employers. If an employer is considering reducing its contributions, then note that if it has more than 50 employees certain pension-specific 60 day consultation requirements will apply (there are also a number of other specified changes where these requirements apply).
There have been very limited easements by the Pensions Regulator in relation to any possible breaches of this where furloughed employees are involved, but employers looking at these exercises should consider if these consultation requirements apply and how the easements might impact that (if at all).
Changes may also be required eg to contracts of employment and/or pension scheme rules – it is important that these are put in place in accordance with legal requirements, and that contributions do not fall below the minimum required under auto enrolment.
- Pension scheme providers and/or trustees must usually report late payment of contributions to the Pensions Regulator once they are 90 days late – this has currently been extended to 150 days by an easement announced by the Pensions Regulator to allow breathing space for employers to bring payments up to date. The Regulator has also encouraged employers to speak to providers about any difficulties they may be having in keeping up to date with pension contributions.
Why is this important for employers?
The Pensions Regulator has various powers in relation to noncompliance with auto enrolment which include issuing compliance notices, fixed penalty and escalating penalty notices (which range from £50 a day for smaller employers to £10,000 a day for the largest). There are also possible criminal offences where there has been "wilful" default.
Quite aside from that there is the possible reputational damage of being subject to regulatory action as well as HR issues particularly if, for example, contributions are not paid correctly and/or on time.
Further, there have been recent Pensions Ombudsman1 decisions in relation to non compliance where he has explicitly said he would refer these cases to the Pensions Regulator, which would probably trigger further regulatory investigation and possible action.
For example, the case of Mr S (PO-26563) in relation to unpaid contributions where the Pensions Ombudsman made a decision against the employer for maladministration, with an additional award for the complainant for exceptional distress and inconvenience.
Though these cases seem quite extreme (in the case mentioned in the footnote the employer failed to respond to correspondence even from the Pensions Ombudsman's office on multiple occasions), this illustrates an additional member/employee driven way in which non compliance could be drawn to the attention of the Pensions Regulator. There is an agreement in place between the Pensions Ombudsman and the Pensions Regulator about sharing information but it is notable in these recent cases that the Ombudsman has been explicit in saying he will report.
The Pensions Regulator has said that it "will take a proportionate and risk-based approach towards enforcement decisions, in light of these challenging times, with the aim of supporting both employers and savers". It has also provided for some more specific easements, currently until 30 June 2020, in relation to reporting breaches and enforcement. Further, the Pensions Ombudsman office has said it will "continue to take account of the latest guidance from The Pensions Regulator to allow for possible effects that the current situation is having on stakeholders and customers". However, the fact that the Pensions Regulator has not excluded enforcement action completely means that employers must do all they can to comply fully with the requirements.
