The Pensions Regulator’s powers of enforcement have hit the front pages in the last few weeks and it is not only Sir Philip Green who ought to be aware that the Regulator may come knocking.
A number of less publicised announcements have demonstrated that trustees and employers of all sizes should be aware that the Regulator is increasingly willing to exercise its enforcement powers, particularly with regard to auto-enrolment.
Priority number one: Auto-enrolment
The Regulator’s new Corporate Plan sets out its priorities for the period 2016 to 2019 and an overall approach which is described as “educate, enable and enforce”.
The information published by the Regulator demonstrates a keen focus on auto-enrolment with 34% of resources for 2016/17 being allocated to this area and the Regulator’s top two priorities now being to:
- successfully implement auto-enrolment; and
- protect consumers from poorly governed master trusts.
Two further publications issued by the Regulator during April indicate that whilst its approach will begin with attempts to “educate” and “enable”, it is not afraid to “enforce” where necessary.
The Regulator’s quarterly bulletin for the period to 31 March 2016 confirms that it exercised its auto-enrolment powers 4,161 times during that quarter, having done so only 6,536 times in the previous four years.
By far the most common power exercised by the Regulator is its power to issue a Compliance Notice (CN) requiring employers to remedy non-compliance with their auto-enrolment duties – 3,057 of these were issued in the first quarter of 2016.
The Regulator describes the CN as a “nudge” to encourage employers to comply with their duties. It is essentially a notice which sets out the steps which the Regulator requires an employer to take in order to comply with its auto-enrolment duties.
In the event that an employer does not comply with a CN, the Regulator may issue a Fixed Penalty Notice (FPN) of £400.
806 FPNs were issued in the first quarter of 2016 and only 1,428 had ever been issued before.
If an employer continues to fail to comply with its duties, the Regulator states that it will consider issuing an Escalating Penalty Notice (EPN) under which the penalty increases on a daily basis until the employer complies with its duties.
The amount of the penalty under this notice is dependent on the number of people in the employer’s PAYE scheme and ranges from £50 per day (one to four employees) to £10,000 per day (500 or more employees).
96 EPNs were issued in the first quarter of 2016 – over three times more than had ever been issued before.
Making an example of Swindon Town
The Regulator published a report on one of the cases where it has issued an EPN. The report demonstrates that employers need to ensure that their administrative processes are capable of dealing with auto-enrolment because failing to do so can result very quickly in significant penalties.
Swindon Town Football Company Limited (STFC) reached its auto-enrolment staging date on 1 February 2014. It was then required to automatically enrol eligible jobholders and to complete a Declaration of Compliance (confirming that it had complied with its auto-enrolment duties).
The Regulator issued a CN on 18 August 2014 when it appeared that STFC had taken no action in respect of auto-enrolment. When no action was taken to comply with the CN, the Regulator issued an FPN on 28 October 2014. STFC did not pay the FPN or comply with the CN and, as a result, an EPN was issued on 20 January 2015 which required STFC to comply within 28 days.
STFC did then make contact with the Regulator and was provided with guidance on its obligations, but had not complied with the CN within the 28 day deadline. The EPN accrued for a period of 12 days from 18 February 2015 at a rate of £2,500 per day. It was stopped on 26 February 2015 when STFC provided its Declaration of Compliance and confirmed that it would pay all unpaid pension contributions within two weeks.
However, no contributions had been made by 12 June 2015 when the Regulator issued an Unpaid Contributions Notice. Contributions then remained unpaid and a second EPN was issued on 17 December 2015 requiring payments to be brought up to date by 28 January 2016. These payments were made in January 2016 so no penalty accrued under the second EPN.
The total amount owed to the Regulator by STFC was £22,900 which has now been paid.
The reasons for STFC’s initial failure to comply with its auto-enrolment duties were not clear from the Regulator’s report. However, it is easy to see how the circumstances described could apply to many small employers if they are not fully prepared for auto-enrolment.
It is not inconceivable that employers who do not have the necessary accounting or payroll resources in place could fail to deal with these matters in view of all of the other issues competing for their limited resources.
The evidence from the Regulator’s recent publications is that whilst it is keen to educate employers as to their duties, all employers should be aware that the threat of relatively high penalties looms on the horizon for those who do not address these issues.