Pensions automatic enrolment – are you getting it right?

The Pensions Regulator is increasing its auto-enrolment enforcement activities. Here’s what you need to think about.

The Pensions Regulator is increasing its auto-enrolment enforcement activities. Here’s wha

UK employers must enrol certain workers in a workplace pension scheme and make at least minimum contributions. The rules are complex and those who don’t comply face enforcement action, which includes naming and substantial fines. The Pensions Regulator has announced the resumption of on-site spot checks where they suspect employers are failing to discharge their obligations. This article summarises what employers should consider to manage their risk.

A return to on-site spot checks

Now COVID-19 restrictions have lifted, the Pensions Regulator has returned to carrying out on-site spot checks of employers suspected of failing to meet their pension automatic enrolment duties.

As well as carrying out spot checks, the Pensions Regulator may also detect non-compliance by reviewing payroll data, or following complaints to its helpline by individuals.

The Pensions Regulator has a range of enforcement powers including imposing penalties of up to £10,000 a day and publishing the names of non-compliant employers and pension schemes on its website. It is important that full co-operation is demonstrated during investigations by the Pensions Regulator as, in addition to making good any underpaid employee and employer pension contributions, significant penalties may be levied, which have reached over £100,000 in the most serious cases.

What are employers’ auto-enrolment obligations?

In order to avoid enforcement action, employers must be clear on their auto-enrolment obligations and have robust governance in place to manage them.  These include:

  • Regularly assessing whether workers are eligible to be auto-enrolled into a qualifying pension scheme;
  • Automatically re-enrolling all eligible jobholders every three years; and
  • Submitting compliance declarations.

UK employers must automatically enrol eligible workers into a pension scheme, but there are limited exceptions for directors without an employment contract and the genuinely self-employed. However, it should be noted that not everyone who is ‘self-employed’ under the tax or employment rights rules will be considered ‘self-employed’ for auto-enrolment purposes.

Businesses should therefore ensure that they have the necessary processes in place to apply the correct tests for auto-enrolment, which are more akin to worker rights, and place greater emphasis on whether the individual works in business on their own account.

What should employers do?

Complying with auto-enrolment obligations can be challenging, given the complexity of the legislative rules, pension scheme rules and complexity of the calculations which, in some cases, may be determined by external factors such as changes to NIC thresholds (employers should therefore confirm whether the recent change to the NIC thresholds on 6 July 2022 affect their scheme contributions).

Employers need robust governance processes and properly trained resource to ensure auto-enrolment obligations are identified and addressed on a timely basis.

Questions organisations can ask to challenge their current processes include:

  • How do we assess and automatically enrol workers? Are we comfortable that we identify and process eligible individuals on a timely basis?
  • For those individuals that don’t contribute to a pension scheme, what records do we have to support that they were ineligible or opted out?
  • If our defined contribution scheme doesn’t use ‘qualifying earnings’ as its definition of pensionable pay, can we demonstrate that the total minimum contributions we make are correctly calculated in line with one of the three alternative approaches (or ‘sets’) allowed?  Are we monitoring ‘pensionable pay’ as defined in the scheme rules to do this?
  • How can we demonstrate that we calculate and deduct employee and employer pension contributions correctly? Is the underlying data current and robust? What processes do we have to identify and correct any errors?
  • Are we using postponement (delaying the duty of automatic enrolment and the need to assess) correctly and can we demonstrate this?
  • Are we considering new employees/leavers and maternity leave?
  • Are we actioning re-enrolment and re-declaration?
  • Are we comfortable that we calculated contributions for workers who were furloughed under the Coronavirus Job Retention Scheme (CJRS) correctly (and is our CJRS compliance position more generally robust)?

Employers should also review their auto-enrolment compliance position and, where errors are identified, these should be discussed with the pension scheme provider so that they can be corrected and, if considered appropriate, disclosed to the Pensions Regulator. It might also be necessary to prepare a communication to affected employees to explain how the position has been rectified and give them assurance that their pension position is now correct.

How KPMG can help

KPMG in the UK’s Employment Solutions team includes payroll professionals who can support on all aspects of payroll compliance.