The Facts 

Johnsons Shoes Company had an automatic enrolment staging date of 1 May 2014, when their automatic enrolment duties started to apply. They were due to complete their declaration of compliance - where an employer confirms to the Pensions Regulator that they’ve met their duties – by 30 September 2014, but failed to meet the deadline. As a result, the Regulator couldn’t be satisfied they had met their automatic enrolment duties by enrolling all eligible staff into a pension scheme from the staging date, paying contributions into it, and writing to staff explaining how automatic enrolment affected them. The Regulator had regularly attempted to communicate with Johnsons, but their lack of action led the Regulator to use a number of its enforcement powers.

When the Regulator issued them with a Fixed Penalty Notice (FPN) they began to communicate and took some steps to meet their duties. However, despite the Regulator's ongoing support and assistance, Johnsons remained non-compliant and the Regulator then issued them with an Escalating Penalty Notice (EPN). When Johnsons first asked the Regulator to carry out a review of the FPN, they said that pressures of work were to blame for not meeting their automatic enrolment duties. The Regulator did not consider this to be a reasonable excuse, as it had sent Johnsons several reminders in the 12 months before the date their duties began to apply and they’d had significant time to prepare. After the unsuccessful review request, Johnsons paid the fine, and took some initial steps to comply. However, Johnsons remained non-compliant and the Regulator therefore issued an EPN on 9 November 2015. This EPN warned Johnsons that if they didn’t meet the requirements of a Compliance Notice (CN) issued on 30 April 2015 by 7 December 2015, they would be fined £2,500 per day. This accrual rate was based on the number of workers in Johnsons’ PAYE scheme. The CN had set out the steps Johnsons were required to take by 7 December to comply with their duties, which included a requirement to provide the Regulator with evidence that they had done so. As Johnsons remained non-compliant, the penalty began to accrue on 8 December 2015.

After receiving the EPN, Johnsons began to communicate with the Regulator, who was able to advise them on what they still needed to do. The EPN accrual was stopped on 23 December 2015 once Johnsons had completed a declaration of compliance, they had provided the appropriate evidence of compliance, and the Regulator satisfied that a system to allow the backdating of contributions was in place. The EPN eventually amounted to £40,000. Johnsons said they would not pay the fine. The Regulator treated this as a request to review the EPN but, because the Regulator received it outside of the 28 day time period allowed for requesting a review, and there were no exceptional circumstances for the delay included in the application or any real grounds against it having been issued, the Regulator declined to conduct a review and the EPN remained in force and payable. Johnsons also made an out of time appeal to the First Tier Tribunal which was struck out because the Tribunal no longer had any jurisdiction. The Regulator sent debt reminder notices and a letter advising that if they didn’t pay the fine, it would take civil recovery action through the courts. Johnsons failed to pay, so the Regulator lodged a money claim in the County Court to recover the debt. Johnsons entered a defence against the proceedings which essentially challenged the Regulator's power to issue the EPN in the first place. The Regulator then made an application to the court to strike out the defence because it displayed no reasonable grounds of appeal.

After receiving the Regulator's application to strike out their defence, Johnsons paid the fine in full, and the £2,000 court fee. This eventual co-operation allowed the Regulator to withdraw the claim. Johnsons are now compliant with their automatic enrolment duties and the staff in their pension scheme are in the same position as they would have been had Johnsons automatically enrolled them on the staging date.

What does this mean for employers?

This case illustrates the need to engage early with the Pensions Regulator where it has identified non-compliance. Johnsons’ initial lack of action led to further delays in complying with their duties, and as a result the Regulator's intervention escalated from a focus on remedial action to one of sanction and redress. Had Johnsons acted quickly, a £40,000 fine, court action and a £2,000 court fee could have been avoided. The case has prompted a fresh warning to employers by the Regulator not to ignore their automatic enrolment duties.

All employers have legal duties and can use the Duties Checker on the Regulator's website to quickly understand exactly what they must do. Any employers experiencing challenges in meeting their automatic enrolment duties should contact the Regulator as early as possible to discuss their situation.

http://www.thepensionsregulator.gov.uk/press/pn17-20.aspx