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Two years on and compliance breaches loom large for auto enrolment pensions

Article courtesy of Corporate Futures TM – Taking the stress out of Auto Enrolment

October 1st 2014 marked two years since employers were mandated to start auto enrolling employees into employer funded workplace pension schemes.

Over the first 2 years 786 firms have been investigated by The Pensions Regulator and during this same period the Department for Work and Pensions (DWP) have made numerous changes to the legislation resulting in many cases to confusion and uncertainty for employers.

This is now being crystallised in new information released by The Pensions Regulator (TPR) as between January and August of 2014, 58% of investigations found potential or actual breaches. This has increased dramatically from just 23% from when auto-enrolment was first rolled out to January 2014. This shows a 7-fold increase in just eight months which is an alarming rise and should be ringing alarm bells for the next phase of businesses facing their staging dates.

These latest results illustrate just how difficult it is for even medium sized employers to get a scheme implemented correctly; remember the data to which these latest results relate are for businesses with between 100 – 500 employees. It is anticipated that these results will get worse as the smaller employers staging dates approach over the next few months.

Why are these breaches and potential breaches occurring? The main reason offered by TPR and many industry commentators is that employers are not engaging with the process and allowing sufficient time to plan and prepare and this leads to implementation difficulties and potential or actual breaches, the other reason offered is that inadequate information and support is being offered to business owners by their advisers.

There is a contra-argument of course which is that the auto enrolment message isn’t being delivered adequately by TPR and DWP and that the level of support and guidance from the authorities to the industry and business owners is often seen as scarce and/or inadequate. To an extent TPR have listened to this latter complaint and they have recently introduced a telephone service but rather than being an advisory service it is seen as merely a ‘kick up the backside’ you need to act now service which TPR hopes will act to spur business owners to take action and to comply.

In truth the answer probably sits somewhere between these 2 arguments, but regardless to which is right or wrong the ultimate responsibility of compliance falls firmly in the lap of the employer and it is they that will face the penalties or threat of penalties if TPR decide to take future action.
We would urge the Government to take far greater pro-active approach and attempt to educate and inform business owners rather than to simply make them aware as this campaign is clearly not working efficiently.

Non-compliance penalties can be as high as £10,000 per day for the larger business, but is still a significant £500 per day for smaller businesses with between 5 – 49 employees, and although no penalties have actually been levied by TPR as yet the amount of precious time being wasted in rectifying pension compliance and administrative issues most definitely is costing businesses both time and money.

Research suggests that the majority of smaller employers are sleepwalking toward this regulatory change or worse burying their heads and hoping it will all go away, and while the overall awareness of auto enrolment is high, their actual understanding of what is involved to plan and prepare for it remains very low. When employers were given a list of the compulsory 33 administrative tasks that need to be completed in order to fully comply with the legislation, just 15% were confident they could tackle these.

On the basis that we already know that many of the larger companies with their greater resources did not foresee the herculean demands and have consequently fallen short in their auto enrolment preparations then matters do not bode well for the smaller businesses.