Automatic enrolment was devised with a long term aim that lots of employees should save meaningful amounts for their old age. That aim was divided up into two sections, each subdivided into steps. The first section is called staging and is bringing in lots of employers and their employees, in stages. This is why the date an employer’s duties start is known as their staging date. So what happens if an employer sticks their head in the sand and ignores their staging date?
As with most legislation, there are consequences for failing to comply. The Pensions Regulator has a wide range of tools to tackle non-compliance including informal action, statutory notices, penalties (fixed and escalating) and court action. The regulator has these powers and does regularly use them, as you can read in the quarterly enforcement bulletins.
One of the tools The Pensions Regulator uses to spot non-compliance is a declaration that employers must complete within 5 months of their staging dates. If it isn’t filed by the deadline, the regulator knows straight away and this triggers a well-rehearsed sequence of enforcement procedures. It may be tempting for an employer who hasn’t complied to enter false information in the declaration of compliance, which would be a criminal offence. I haven’t yet seen news of any employers prosecuted for making false declarations but I expect this is just a matter of time.
The Pensions Regulator prefers employers to comply of their own accord and help is available for employers and their advisers, including this guidance for advisers whose clients are late in meeting their obligations.
The guidance explains that it is the employers responsibility to comply, and if they are think they are unable to, they should immediately contact The Pensions Regulator, who will work with them to help them meet their obligations.
If an employer is late, the regulator will expect them to take reasonable steps to put workers back in the position they would have been if they had complied on time.
For example, if you failed to enrol a worker from your staging date, you should:
- enrol them in a pension scheme, treating the staging date as their automatic enrolment date
- pay backdated employer contributions to put them in the position they would have been in had you complied on time
- give them the option to pay their own backdated contributions – staff can choose whether or not to do this
We are approaching the end of staging. From October, new businesses will have to operate automatic enrolment as soon as they hire their first employee. That doesn’t apply to employers who start up in September – they will be allocated the very last staging date, 1st February 2018.
Those who have already completed their staging duties can look ahead to the next section of the great automatic enrolment project, called phasing. Starting next April, this will involve gradually upping the amounts being saved to something more meaningful than the 2% of qualifying earnings that most newly-enrolled employees are now saving – it may come as a surprise to some that 2% won’t buy them a comfortable retirement. You can look up the phased increases in contributions on the website of The Pension Regulator.