61: Automatic enrolment: financial difficulties are no excuse for non-compliance
The Pensions Regulator has stressed that employers must not neglect their automatic enrolment duties as employers adjust to the consequences of the coronavirus pandemic and the new challenges ahead.
The Regulator recognises businesses will have been impacted in different ways and that many will be changing the way they operate in response to the pandemic. However, whatever the situation, the Regulator’s message is simple: don’t neglect workplace pension duties.
Employers must continue to assess staff to check if they are eligible for automatic enrolment, carry out re-enrolment every three years and put new staff in a pension. The Regulator notes that gig-economy, part-time and seasonal employers are at greater risk of non-compliance than others and states that it is looking at the unique challenges faced by businesses in such sectors so that it can best support them to ensure compliance. This follows the Supreme Court Uber decision that we covered in our blog earlier this year.
The Regulator makes clear it will use its enforcement powers where appropriate to ensure all savers are protected. These can include requiring employers to pay missed contributions and interest, together with possible financial penalties and fines. Workers who think that their employer is not complying with their statutory duty will need to rely on the Regulator’s powers to enforce their rights in many cases as they often do not have an ability to bring a claim directly against the employer for breach of contract.
However, the recent Pensions Ombudsman decision in the IVI Metallics Group Scheme decision (30 July 2021) (IVI Metallics) is a reminder that employees can also make a compliant to the Ombudsman. It also makes clear that an employer’s economic difficulties are not sufficient reason to breach automatic enrolment duties.
In IVI Metallics, the employer had deducted employee pension contributions but failed to pay them into a qualifying pension plan on the grounds that it was suffering from ‘stretched cashflow’ and ‘financial changes’. Five furloughed employees subsequently complained to the Ombudsman. However during the period in which the parties liaised with the Ombudsman, the employer continued to deduct employee contributions and only remitted some of them to the pension plan.
The Ombudsman’s Adjudicator held that the failure to pay across contributions constituted maladministration which would have caused the employees’ serious distress and inconvenience. Accordingly it should pay the missing contributions to the pension plan and make good any loss of investment return within 14 days and should also pay each applicant £1,000 for the serious distress and inconvenience.
The employer’s financial difficulties persisted and in further representations to the Ombudsman it stated it was able to pay the £1,000 but could not pay the contributions and investment returns within the required time period. However, the Ombudsman rejected the representations and the Adjudicator’s decision was subsequently upheld.
Employers in financial stress will often have hard decisions to make but the Regulator’s statement and the recent Ombudsman decision make clear that financial difficulty is not a valid excuse for failure to comply with automatic enrolment obligations. The employer in IVI Metallics may well end up paying more than the costs of complying with those obligations.
However, the same could be true for many employers who fail to comply, even without an Ombudsman award for serious distress and inconvenience. Not only may there the cost of making good missed contributions and paying interest but there are also likely to be meaningful administrative costs in putting in place the appropriate level of remedial action and ensuring that meets the Regulator’s expectations.
Our experienced team can help with all of your automatic enrolment compliance issues.