In our latest compliance and enforcement report, we have once again demonstrated how we are using our powers to safeguard pension savers.

The bulletin for January to March 2018 shows how we are ensuring employers meet their automatic enrolment pension duties. This quarter’s enforcement action represented over 20% of the AE powers we’ve ever used, including nearly 20,000 Compliance Notices (CNs), over 11,000 £400 Fixed Penalty Notices (FPNs), and over 2,500 Escalating Penalty Notices (EPNs) for those who persistently failed to meet their duties.

This high number was due to a bulge of employer staging dates in autumn 2017, with their declaration of compliance due date falling five months later.

We also successfully prosecuted a company and its managing director for falsely claiming they had put their staff into a pension. Employers who deliberately put incorrect information on their declaration of compliance risk being found out in a number of ways, including from spot checks or whistleblowers.

Huge numbers of employers are starting their workplace pensions duties every month and the vast majority are successfully meeting their duties.

However, where an employer fails to do the right thing for their staff, we will take action using the wide range of powers available to us.

The bulletin highlights:

+ A total of 35,862 enforcement powers were used between January and March 2018 compared to 28,446 the previous quarter
+ 3,721 more fixed penalty notices were issued this quarter compared to last quarter
+ 2,037 more compliance notices were issued this quarter compared to last quarter
+ 431 more unpaid contribution notices were issued this quarter compared to last quarter

What steps can your clients take to ensure compliance with automatic enrolment?

They will need to ensure that they pay and maintain regular contributions into their chosen pension, monitor the age and earnings of their staff and enrol eligible staff, process any requests to join or leave the scheme, and keep and maintain accurate records. They’ll also need to re-enrol eligible staff into an automatic enrolment pension scheme every three years. Let’s take these in turn:

1. Pay and maintain regular contributions into the pension

Employers need to calculate and pay the employer contributions to their staff’s pension scheme on an ongoing basis. In addition, they’ll need to calculate staff contributions, make the necessary deductions from payroll, and transfer their contributions to the pension scheme. They’ll have agreed what these rates are and when to pay them with their chosen pension scheme. By law, your client and their staff have to make minimum contributions into the scheme, and they should be aware that these minimum contribution levels increased in April 2018, and are due to increase again in April 2019 (see below).

2. Monitor the age and earnings of all staff

Employers will need to monitor any changes in age and earnings of their staff to identify if they become eligible for automatic enrolment. They’ll also need to check eligibility of any new members of staff on the day they start work. Should staff members become eligible, for example by turning 22, or by meeting the earnings thresholds, then they’ll need to be put into a pension scheme and contributions paid to it. Payroll software should be able to support clients with this.

3. Process requests to opt in, join or leave the scheme, and keep and maintain accurate records

Opt in/join: If any staff write to their employer asking to join their workplace pension scheme, they must be put into it within a month of the request being received. Employers will have to pay into the pension scheme unless they are aged 16-74 and earn less than £490 a month or £113 per week.

Opt out: If any staff choose to leave the pension scheme within one month of being put into it, employers need to stop taking money out of their pay and arrange a full refund of what has been paid to date. This must happen within one month of their request.

Keeping records: Staff records need to be kept up-to-date, including who’s been enrolled and when, information about the pension scheme, and the contributions being paid. These records must be kept for six years, except for requests to leave the pension scheme which must be kept for four years.

4. Re-enrolment

Every three years, all staff who either opted out of their workplace pension scheme or have ceased to become members, need to be reassessed and re-enrolled if they meet certain criteria. Employers will need to write to them to tell them what they’ve done, and then they’ll need to re-declare their compliance to The Pensions Regulator. Further information on ongoing duties can be found on The Pensions Regulator’s website.

Useful links:
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By Darren Ryder – The Pensions Regulator

A generation ago, pensions communication was a relatively simple business. Until 1988, employers could make membership of their occupational scheme a condition of employment, so there was little need to promote the benefits of membership. The scheme itself was likely to be a final salary arrangement. Members had no need to consider investment strategies, decumulation options or retirement dates. The point of retirement would be rigidly defined and would reflect the (then legal) mandatory retirement age. 

All major decisions would be determined by the scheme’s rules, and the nature of a Defined Benefit (DB) pension promise left many members to assume that all they needed do was wait for their retirement age for a pension to be provided. Perhaps the only major choice would be whether to exercise a commutation option. 

However, a supposedly simpler age still generated problems as a consequence of inadequate communication. Until 1977, married women had the option of paying National Insurance contributions at a reduced rate on the understanding that they would not accrue the State pension in their own right but would be able to claim a State pension based on 60% of their husband’s contribution history once both had reached State Pension Age. The full implications of exercising this option were not adequately understood, and in recent years a generation of women have reached retirement age with inadequate pension provision without being aware of the consequences of a decision made decades previously. Better communication would have avoided this.

Today’s workplace pension schemes are heavily dependent on effective communications as members need to be able to make informed decisions throughout their period of membership.

Although automatic enrolment now sees employees joining schemes by default, membership has, for the last thirty years, been voluntary, and new members must be provided with information which will allow them to decide if membership is in their best interests. Within the private sector the scheme will almost certainly be a Defined Contribution (DC) arrangement. Although the significant majority of members will remain invested in the scheme’s default fund throughout their membership, some will wish to consider alternatives, and these too must be adequately described in order to permit an informed choice. Finally, from their mid-fifties, members will consider decumulation options, and today decumulation need not necessarily be at the point of retirement. This is surely the most important aspect of modern pensions communications.

Members need to understand the different options available to them.

They need to understand the consequences of decumulation, such as the effect of the Money Purchase Annual Allowance, and they need to be aware of the risks posed by pensions scams.

The Government understood all too well that the groundbreaking reforms of Freedom and Choice required a major communications initiative to ensure that they could operate in a satisfactory manner. The launch of Pension Wise, and its forthcoming incorporation into a single financial guidance body, shows that effective pensions communication is vital if members are to achieve satisfactory retirement outcomes.

In an era where employees are likely to accrue retirement benefits with a range of different employers, keeping track of past pensions is increasingly difficult. The pensions dashboard is a bold solution that will use modern technology to allow members to trace a lifetime’s pension accrual and to make informed decisions about how best to use what they have saved.

Workplace pension provision has never been more complex than it is today.

Effective communication is vital if the current system is to serve members in an effective manner. Finding effective solutions presents a major challenge for today’s pensions professionals. It is a challenge which is addressed at some length in this month’s Pensions Aspects, and we hope you enjoy the ideas that we present here.

By Tim Middleton – PMI Technical Consultant