Size doesn’t matter
A minority of small employers are failing to act on warnings from the Pensions Regulator.
Automatic enrolment has “changed the UK workplace forever”, according to the Pensions and Lifetime Savings Association. More than six million people have started to save via a workplace pension as a result of automatic enrolment1, with more to come between now and February 2018.
Auto-enrolment makes it compulsory for employers to automatically enrol their eligible workers into a pension scheme. Almost all employers are affected. An important exception is a company with only a single employee who is also a director. The range of employers affected therefore runs from multinational companies to a family which employs a nanny.
Every employer has a ‘staging date’ – the date that their automatic enrolment duties come into effect. Since January 2016, many firms with fewer than 30 employees have passed their ‘staging date’, increasing the number of employers with auto-enrolment duties by thousands at a time.
For the first time ever, small companies are obliged by law to pay into staff pensions. Consequently, the Pensions Regulator is reporting that it is having to flex its muscles more often to ensure that these responsibilities are met. Every few months it releases its Compliance and Enforcement Quarterly Bulletin, which reports on instances of when it has had to use its powers to enforce the rules.
The latest bulletin, covering 1 July to 30 September 2016, shows that the regulator issued 3,728 Fixed Penalty Notices to employers for failing to meet their duties – more than four times the number it had issued in the previous quarter. The regulator maintains, however, that this is still a very small proportion relative to the number of employers staging.
“The latest phase of auto-enrolment was always going to be challenging,” says Ian Price, Divisional Director at St. James’s Place. “Initially, only a very small number of corporations had to comply with auto-enrolment, but now a mountain of small and micro employers are reaching their staging dates, so more instances of non-compliance are to be expected.”
Some organisations have contested their fines, claiming that their non-compliance was unintentional and that they had a ‘reasonable excuse’. The circumstances that employers are citing in their defence include confusion between the employer and the payroll administrator as to who is supposed to be doing what; illness; and staff shortages. However, the regulator says in its report that, in the eyes of the law, these reasons are not sufficient to avoid a fine.
The legal framework for automatic enrolment was set out in the Pensions Act 2008, and further changes were introduced after the current government entered office in 2010, but it wasn’t until 2012 that the first companies were brought into the scheme. The last tranche of companies will stage in early 2018. It continues to be argued that the reforms are an essential part of the solution to the UK’s savings crisis.
“Auto-enrolment imposes new duties and, probably, additional costs on businesses,” says Price. “There are many decisions to be made and potential pitfalls at every stage. The Pensions Regulator has produced detailed guidance, but many companies value the expertise of an adviser or accountant who can look at their particular circumstances and recommend solutions. Any businesses that are struggling should get in touch - they shouldn’t wait for a fine.”
There are potential penalties of up to £10,000 a day for employers who fail to implement auto-enrolment. There are also other penalties for those who encourage employees to opt out, for example by recruiting only those who agree to opt out immediately once their employment begins. The Pensions Regulator has already fined one business £22,900 for non-compliance – a reminder that no employer, however small, can afford to ignore the changes.
The value of a pension with St. James's Place will be directly linked to the performance of the funds selected and the value can therefore go down as well as up. You may get back less than you invested.