There can be little doubt that the introduction of auto-enrolment in 2012 has been a success, with workplace pension participation rate in the UK rising to 79% since then… that’s 22.6 million employees. But it appears possible that since the originally furore of publicity surrounding auto-enrolment, some employers may have taken their eye off the ball in terms of monitoring compliance.

A recent survey has highlighted a concern that a number of employers are not keeping up with their duties under the auto-enrolment legislation, with the result that they may be facing engagement with the Pensions Regulator (Regulator).

A picture emerges that over the eleven years since the introduction of employer duties to provide access to workplace pension savings and to automatically enrol workers into those schemes, a large number of employers are not sure that they are doing so correctly.

This potentially puts those employers at risk of sanction by the Pensions Regulator. Merely a brief perusal of the Regulator’s website reveals a wide breadth and depth of powers and sanctions, which it has been only too ready to exercise in the recent past.

The Regulator has the power, under the Pensions Act 2004, to visit an employer to determine whether it is complying with all the employer duties imposed by the auto-enrolment legislation. Unfortunately, according to the recent survey, only 13% of employers surveyed are completely confident they would pass one of the Regulator’s auto-enrolment spot checks.

Employers have been through a difficult time over the past few years and it would appear that the enthusiasm prompted by the initial success of auto-enrolment has transitioned to a weariness over yet another cost pressure on employers. Coupled with a turnover of auto-enrolment savvy staff, time-poor employers seem to be paying insufficient attention to continued compliance with their auto-enrolment duties.

Compliance with duties

That could mean problems for such employers in a post-pandemic world. Whilst on-site checks were largely suspended during the Covid-19 pandemic, they have now recommenced with a particular focus by the Regulator on employers in Greater Manchester, Nottingham, Greater London and Belfast. In the period from January to June 2022 the Regulator carried out 97 such checks and has carried out 1,999 workplace inspections since the advent of auto-enrolment.

At a basic level, employers are required by law to:

• monitor the ages and earnings of employees every time they are paid to see whether they need to be put into a workplace pension scheme;
• check whether they are paying at least the minimum contribution levels into their pension scheme;
• manage requests from employees to join or leave their pension scheme and keep accurate records;
• keep records of how they’ve met their legal duties;
• carry out re-enrolment duties every three years and complete a re-declaration of compliance.

Sanctions

In the event that the Regulator determines that an employer hasn’t met legal duties, it will take enforcement action which may result in a fine being levied on the employer.

Fixed penalty notice

Where the Regulator finds that an employer has failed to comply with its duties it will issue a statutory notice to comply with those duties and/or pay any missing or late contributions to its pension scheme. Failure to comply with a statutory notice may result in a fixed penalty notice of £400.

Escalating penalty notice

Continued failure to comply with a statutory notice may result in an escalating penalty notice. The notice gives a deadline for compliance, after which the employer may be fined at a daily rate of £50 to £10,000, depending on the number of employees. The fine will continue to grow at the daily rate until the employer complies with the statutory notice.

Prohibited recruitment conduct penalty notice

Where the Regulator finds that an employer’s recruitment practices are determined by reference to a potential recruit’s likelihood, or otherwise, to opt out of auto-enrolment a separate penalty notice may be issued. The fine is levied at a rate of £1,000 to £5,000, depending on the number of employees.

Review

There is an increasing spotlight on pensions from the Government and the Regulator. With discussions and consultations on contribution levels and value for members, auto-enrolment is under the microscope and employers would do well to review compliance with their legal duties, as well as with best practice.

At a basic level, employers should be thinking about:

• reviewing communications with employees on both for enrolment and opting-out;
• ensuring the contributions they are paying, and those they are deducting from employees, are calculated properly and on the correct basis;
• checking their compliance with the re-enrolment and re-certification cycle;
• reviewing contractual provisions to ensure recruits and employees are not induced to opt-out of their workplace pension;
• making sure their record keeping is up to date;
• ensuring compliance with duties regarding company directors; and
• checking pension related documentation is up to date, accurate and compliant.

Compliance with auto-enrolment duties is an ongoing obligation. Undertaking a health check on auto-enrolment now could save employers from engagement with the Regulator and save time and money in the long term.