Auto enrolment penalties on the rise

Automatic enrolment (AE) into a workplace pension has been here for a while now and depending on their staging date, small and micro employers have been required to engage with the process to ensure relevant workers are enrolled correctly and on time.

By Paul Jackson, Taylor Patterson.

While the vast majority of small and micro employers are successfully meeting their duties, it is clear from the recent bulletin from The Pensions Regulator (TPR) that, as the numbers beginning their employer duties are increasing, so the numbers of penalties are also increasing.

This could be due to the very simple fact that, whereas medium and large companies have trained and dedicated staff to deal with payroll and the automatic enrolment of workers, small and micro employers often do not.

Employers need to be aware of their duties and what support is available to them;

  • There are financial consequences of failing to fulfil their employer duties.
  • There are options for advice out there.
These are the actions that employers must take at their staging date to avoid the risk of a penalty:
  • pick a qualifying pension scheme
  • complete the assessment of workers correctly and on time
  • enrol the relevant workers automatically
  • communicate in writing to all workers
  • complete the declaration of compliance.
TPR reports that the most common error is failure to complete the declaration of compliance at the end of the staging process.

Just as there are penalties involved with incorrectly processing or neglecting to process income tax and National Insurance (NI) contributions, so there are with a failure to apply AE and general pension processes correctly. Some of the other areas in which non-compliance can trigger penalties are:
  • Failure to make employer contributions to the pension company - fine up to £50,000
  • Failure to pay over worker's contributions to the pension company – fine up to £50,000
Of the small employers required to enrol their staff into a workplace pension, TPR reports that more than 95% have met their duties. However, according to TPR's bulletin (1 January – 31 March 2016), 3,057 compliance notices, 806 fixed penalty notices and 96 escalating penalty notices were issued, indicating that many employers are still getting it wrong.

Remember that it is the employer, not their agent or the member of staff, who holds the legal responsibility for complying with the law.

Workplace pensions are not going to go away, and the attitude to retirement has changed. It is now seen as the third, or golden age, and employees will need to save while working so that funds are available for planned projects during retirement. Historically this has not been happening, so employers have to play a much bigger part. The employer duties for auto enrolment if not met successfully by small and micro employers, will mean further increases in the number of penalties being issued and paid.