Sharp increase in Pension Auto-enrolment fines
A freedom of information request has revealed that there has been a sharp increase in the number of businesses being fined by the Pensions Regulator. Most of these fines are attributable to pension auto-enrolment errors as opposed to attempts to deliberately ignore legislative requirements.
The Pension Regulator issued 35,810 fines in the year 2017/18 totalling some £42 million. This compares to 14,650 fines in the preceding year (2016/17) totalling £12.6 million. This represents a 144% increase in one year.
The cause in the spike in the number of fines is as a result of the expansion of the pension auto-enrolment requirements to all remaining employers who are small businesses with fewer than 50 employees.
When the Pension auto-enrolment scheme was introduced it only affected larger employers, many of whom already had better schemes in place compared with the minimum requirements set down by the legislation, and with in-house resources to implement the procedures required.
The law under the Pensions Act 2008 requires every employer in the UK to place their eligible employees into a qualifying pension scheme, whereby both the employer and the employee are required to make contributions. This scheme has gradually been rolled out over a period of ten years starting with the largest employees and finishing with the smallest of employers through a series of staging dates.
Currently employers are required to contribute 2% of an employee’s salary into a qualifying scheme and employees are required to pay in 3%.
From 6 April 2019, employers will be required to increase their contributions to a minimum of 3% of salary and the total contributions made by employers and employees must be no less than 8%.
The main cause of the increase in fines is attributable to small businesses, where around 1.1 million have fewer than ten employees and who have been legally required to enrol their employees earning more than £10,000 per annum into a qualifying workplace pension scheme.
As has been pointed out it seems that there is no deliberate intention by small businesses to avoid these requirements, but instead there have been re-occurring problems in making errors, combined with poor record keeping. Some businesses are being fined as a result of spot-checks around the country, combined with simply failing to provide regular updates to the Pension Regulator and where errors are left unreported for extended periods of time attracting larger fines.
It is a fact that many small businesses do not have the resources or expertise to deal with the schemes requirements and are getting caught out by failing to properly enrol their employees or appreciate the increases in payments that they are required to make.
A statement from the Pensions Regulator has however been positive by emphasising that the vast majority of employers are successfully meeting their auto-enrolment requirements and that the rise in the number of fines is in-line with the rise in the number of employers that are required to comply with the legislation. They suggest that there is no widespread issue with employers keeping inaccurate records or paying incorrect contributions.
| It is therefore recommended that employers whatever their size and resources make greater attempts to keep accurate records and to ensure that they are up to date with the requisite legislative requirements.
There are a number of software products available on the market and it might be better to outsource the task to payroll professionals which would be more cost effective in the long term compared to being at risk of a large fine. |
If you have any concerns about your current arrangements and business models then it is recommended that you contact our Head of Employment Law, Steven Eckett at Meaby & Co for timely advice: seckett@meaby.co.uk or call 0207 703 5034 or by e-mail – seckett@meaby.co.uk
