The Pensions Regulator has issued revised codes of practice and guidance on reporting the late payment of contributions to ensure a system of effective monitoring of contributions in money purchase work-based and personal pension schemes. The revised codes, which are designed to support auto-enrolment, are expected to come into force this autumn.
What does this mean for trustees, scheme managers and employers?
Trustees and managers should employ a risk-based, proportionate monitoring process to check contributions are paid in full and on time and to identify high risk situations such as where employers have a history of payment errors or use manual payroll processes. Periodic checks of employers should be carried out by trustees and managers to ascertain whether contributions are being paid in line with the payment schedule. Their obligations stretch to require them to have an understanding of all pensionable data, not merely to complete the process of checking payments are made. When the employer doesn’t routinely provide pensionable pay information, trustees and providers should request it when they consider they need it to complete their risk-based monitoring. There is now a reasonable expectation of employers to provide this within 7 working days.
Employers bear primary accountability for ensuring that the correct amount of contribution is paid to the scheme in a timely manner. In terms of the recovery of unpaid contributions, the trustee or manager should deal with the issue initially and report the omission to the employer at least 3 times within 90 days. One of these contacts should be by telephone and records of all attempts should be kept as evidence of monitoring. Employer-proposed payment arrangements for outstanding contributions are welcomed. However, the specifics of the agreement remain within the discretion of trustees and managers.
The Role of the Regulator
When employers fail to carry out their contribution obligations and the trustees or managers are unsuccessful in their recovery attempts, then they are to notify the Regulator of a material payment failure within 10 working days and notify scheme members as soon as is practicable but within 30 days of the submission to the Regulator. The Regulator focusses on securing employer compliance while returning scheme members, as quickly as possible, to the position they would have been if the payment failure had not occurred. If necessary an unpaid contributions notice may be issued to the employer and if the non-compliance continues, the Regulator may issue a fixed penalty notice of £400 and subsequently an escalating penalty notice.
How are judgements of materiality made?
Where a trustee or manager has reasonable cause to believe that the failed payment will be materially significant to the Regulator in its functions, it can be regarded as a material payment failure e.g. when a missed payment is 90 days overdue.
New reporting system
Another development is the forthcoming introduction of a standardised reporting procedure to the Regulator in 2014. The transition to the new online system is expected to be complete for all users by March 2015.