Automatic enrolment – a pensions success, backed by increasing enforcement

In the UK, automatic enrolment into pension schemes started in October 2012. Phased in for five years, all employers must ensure that their workers/employees – aged between 22 and state pension age and earning more than £10,000 a year – are now enrolled into a suitable pension scheme. Even though it has been declared a success, as with all legal and regulatory changes, risk managers still need to understand the regulatory regime that sits behind the process and the potential risks of non-compliance. Contribution rates required have gradually increased since 2012 and, from April 2019, a minimum 8% must be paid, of which at least 3% must come from the employer. In terms of increasing the numbers of pension savers, it is a success: in December 2018, the Department for Work and Pensions reported that 17.7 million employees were participating in workplace pensions – an increase of 7.7 million since 2012. However, there remain concerns over whether enough is being saved to meet retirement expectations. It is intended that the age threshold will reduce from 22 to 18 and the lower end of the earnings band removed, which will increase participation and contributions. A review of the contribution rates is also due to take place. The government has also committed to pilot trials to improve pension saving by the self-employed who are not covered by auto-enrolment. When automatic enrolment was introduced, The Pensions Regulator adopted an "education, enable and enforce" approach, with the emphasis on the first two. The emphasis is now very much on "enforce" as the regulator adopts a tougher line with non-compliant employers. Risk managers need to be aware that, during the year to 31 March 2018, The Pensions Regulator issued more than £42m of fines concerning automatic enrolment, up from £12.6m the previous year. More than 100,000 enforcement actions were taken by the regulator in the same period – double the number from the previous year and almost two thirds of all enforcement action taken since 1 April 2013. The indications are that 2018-2019 will see a further increase in the regulator's enforcement action. The number of whistleblowing reports also increased by about third, which suggests that The Pensions Regulator's publicity drive of recent years – to ensure employees are aware of their rights and employers are aware of their obligations – has been paying off. Perhaps the biggest surprise is the increase in "escalating penalty notices", from £7.6m in 2016-2017 to £30.5m in 2017-2018. These are daily penalties that can be up to £10,000 per day, depending on the size of the business. These are used for more serious or persistent breaches. But they can only be issued after the regulator has first issued a compliance notice (an order to comply with the legislation), an unpaid contributions’ notice, or a notice requesting information. So, these are being issued against employers that are ignoring the regulator in a misguided hope that it will go away. Added to this is the fact that The Pensions Regulator has begun criminal prosecutions for more flagrant failures to comply with automatic enrolment: In May 2018, Crest Healthcare and its managing director were prosecuted and had to pay more than £20,000 in fines and costs after pleading guilty to wilfully failing to comply with auto-enrolment duties, and of providing false information to the regulator. In June 2018, Workchain Limited, two directors and five senior staff were prosecuted under the Computer Misuse Act for impersonating staff to opt them out of its pension scheme. In November 2018, an accountant was fined after he falsely claimed that a client had enrolled its staff onto a workplace pension scheme. This was the first time a third party – working on behalf of an employer – had been prosecuted. In January 2019, an accounts manager pleaded guilty to charges of knowingly or recklessly providing The Pensions Regulator with false or misleading information about a restaurant chain’s failure to enrol staff. There is no doubt that automatic enrolment has added a burden for employers, but with The Pensions Regulator continuing to give the very clear message that it expects all employers to comply with automatic enrolment and backing it with robust enforcement, employers have to simply accept that burden as part of the cost of doing business. Contributed by Mark Howard, partner, Clyde & Co

Automatic enrolment – a pensions success, backed by increasing enforcement

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