It has been over five years since the requirement on employers to automatically enrol certain workers into a qualifying pension scheme began being rolled out. Indeed, many of these employers will already have carried out the triennial re-enrolment of workers which the law also requires. The Pensions Regulator is charged with overseeing auto-enrolment compliance and from its communications, it has had a busy year, taking enforcement action where employers appear to have failed to carry out auto-enrolment properly (if at all).

The auto-enrolment requirements are complex and sometimes difficult to apply. For example, determining when a worker has sufficient earnings to trigger the requirements, especially where the workforce includes workers who have fluctuating earnings. The key here will be to understand the legal triggers and have effective payroll monitoring and implementation in place to make sure that auto-enrolment is carried out when it needs to be.

From the beginning, auto-enrolment was phased in so that the date it applied to an employer (‘the staging date’) was based on the size of the employer’s PAYE workforce as at April 2012 and was several months after the auto-enrolment requirements were introduced to allow existing employers time to set up their arrangements. This was also the case for new employers after April 2012. However, the last of these employers up until 30 September 2017 are due to complete reaching their staging dates by 1 February 2018, and any new employer on and from 1 October 2017 is required to comply from the start date of employment of its first worker. Such an employer will need to be ready to comply with the auto-enrolment requirements straight away (subject to the ability to postpone for up to three months which can provide limited relief from this).

Auto-enrolment compliance usually involves the employer paying certain minimum contributions in respect of a relevant worker into a qualifying pension scheme. For a defined contribution scheme to be a qualifying pension scheme, one of the requirements is that at least certain minimum contributions are paid to it, as a percentage of ‘qualifying earnings’ . (There are other ways in which a pension scheme can be a qualifying pension scheme, but these are not relevant to this article.) At the moment employers have been in a transitional phase for these contributions but they are set to increase on and from 6 April 2018 (and again on and from 6 April 2019) as follows:

Date effective

Employer minimum contribution (% of “qualifying earnings”)

Total minimum contribution (% of “qualifying earnings”)

Currently until 5 April 2018

1%

2%

6 April 2018 to 5 April 2019

2%

5%

6 April 2019 onwards

3%

8%

These changes should be communicated to employees and payroll systems will need to be adjusted to accommodate these changes.

What powers does the Regulator have if things go wrong?

With the complexity of the requirements, there is scope for error which could be quite accidental. What powers does the Regulator have if things go wrong?

The Regulator has an extensive range of mechanisms it can use. As far as investigation is concerned, it can use powers to request information and to inspect premises (indeed, it has widely advertised its campaign this year to spot check businesses around the country for auto-enrolment compliance). A compliance notice can require the remedying of auto- enrolment breaches. An unpaid contribution notice can require an employer to pay any auto- enrolment contributions it has failed to pay in respect of a worker (and in some cases can require the employer to pay the worker contributions too and interest). Fixed penalty notices can be issued if any statutory notices such as a compliance notice have not been complied with or if certain prescribed employer auto-enrolment duties are being breached. For more serious or persistent breaches, the Regulator can issue an Escalating Penalty Notice (‘EPN’) which can range (depending on the number of workers) from £50 a day to £10,000 per day. In instances of wilful default, for example, the Regulator can even bring criminal proceedings.

More than 13,000 compliance notices issued so far

In its compliance and enforcement bulletin for the period July – September 2017, the Regulator reports that it is has issued 13,752 compliance notices, 5,479 fixed penalty notices of £400 each and 1,433 EPNs in that period (and for the year to September 2017, 62,462 compliance notices, 24,779 fixed penalty notices and 5,331 EPNs). In the compliance and enforcement bulletin for the period 1 January-March 2017, the Regulator also confirmed that it now publishes on its website details of those employers who pay an EPN but still do not comply and those which have been made subject to a court order as a result of an unpaid EPN. So, the Regulator has been busy and the risk of reputational damage for non-compliance, particularly in relation to EPNs should not be under estimated.

Notable actions taken by the Regulator in relation to auto-enrolment enforcement include those against a bus company called Stotts Tours (Oldham) and Alan Stott, its managing director who in total pleaded guilty to 16 offences of wilfully failing to comply with auto-enrolment. This is also the first criminal prosecution of this nature that the Regulator has brought. The breach, it appears relates to a failure to put 36 staff members into an auto-enrolment scheme and the convictions were secured in November this year.

The Regulator also ended 2017 by publishing details of another proposed prosecution against a healthcare company (Crest Healthcare) and its managing director who are accused of wilfully failing to comply with certain auto-enrolment duties and of falsely claiming that they had enrolled 25 staff into a workplace pension scheme (and so providing false information to the Regulator which is also an offence).

However, not all non compliance will lead to such an extreme result. Though one of the Regulator’s statutory duties is to maximise auto-enrolment compliance, it states, in its strategy document on enforcement, that it strives to be a ‘regulator that advocates an innovative and collaborative approach.’ Indeed, it recognises that some employers will fail to comply because they have not understood what is required of them or they have not been able to comply and it says that it will consider the circumstances of the case and where appropriate, work with the employer to ‘get them compliant’. However, where employers do not present a willingness to comply, the Regulator says it will use its enforcement mechanisms in a proportionate and targeted manner.

Review of auto-enrolment published

On 18 December 2017, the government published the outcome of its much awaited review of auto-enrolment. One of the main purposes of the review was to look at maintaining the momentum already achieved under auto enrolment in relation to pension saving, and to build a more inclusive savings culture for future generations, particularly by considering how certain people currently outside the existing framework may be brought into it.

Under the current regime a worker must be, amongst other things, a certain minimum age (currently 22) to be eligible for auto-enrolment. Certain minimum auto-enrolment contribution levels are also currently payable on a band of earnings which have so far tracked the lower and upper earnings limits. The key proposals emerging from the review are that the government is proposing to lower the minimum eligibility age to 18, and to remove the lower limit from the band of earnings upon which contributions are payable so that they will be based on earnings from the first pound earned (but still subject to an upper limit). However, both of these proposals are not due to be introduced until the ‘mid-2020’s’ after, amongst other things, consultation. Employers should keep a watching brief on future developments in this regard.

Recognising the difficulties of bringing the self-employed into the auto-enrolment regime (particularly as they have no employer to facilitate the provision), the government is to test how to increase pension saving for this category of people which it will then use to formulate possible policy and reform for consultation.

Atypical workers (such as those in the gig economy) have received much press coverage due to the issues around employment status, which can have a knock on effect on pensions. The review considers that “a large number of these most likely come within the existing auto-enrolment framework.” However, the government has said it will look at whether the current rules could be clarified in relation to those people and those who engage them. Indeed it also says if any changes to the statutory tests for employment status are considered necessary after further reviews following the Matthew Taylor report, then it will ensure that any necessary changes will be also be considered in relation to auto-enrolment to ensure coherence and certainty.

On contribution levels, the government has said it will continue to monitor the impact of the increase in minimum contribution rates in 2018 and 2019 (see above) to then consider future contribution rates and to better understand the full impact of the cost burden of auto-enrolment on employers, workers and taxpayers. The report also says that for 2018/19 the earnings trigger at which a worker is automatically enrolled will continue to be set at £10,000 but that the government will continue to review this threshold annually.

The review paves the way for possible auto-enrolment developments in the future – if you have any queries on what is proposed please do not hesitate to contact our pensions team who would be happy to discuss.

Automatic enrolment won’t go away

The starting point is to be clear about what compliance with the auto-enrolment duties entails, taking advice where necessary. If things do go wrong, and much will depend on the facts of the case, the key is to address any issues of non compliance by putting in place and executing a plan to rectify this as soon as possible. We can assist with this process by helping to identify any legal issues and in the liaison with the Regulator, should that arise, to bring matters to a satisfactory conclusion.

Maybe we should leave the last word with the Regulator itself, from its 1 January to 31 March 2017 compliance and enforcement bulletin:

“Message to employers

Let us know if you are having problems meeting your duties and don’t tell us you’re carrying out tasks if you’re not. Automatic enrolment won’t go away if you ignore it, and you risk having to pay a lot of money in fines and potentially be taken to court if you don’t take action….”